Technical Analysis

Unhealthy Trends

Trends on Decreasing Volume

• When prices are going up and volume is decreasing, this means that the trend is unlikely to continue; prices will either increase at a slower rate or start to fall.
• When prices are decreasing and volume is decreasing, the trend is unlikely to continue and price will either decrease at a slower rate or start to fall.

1. After an uptrend in March, April’s main feature in the USD/CAN currency pair is an extended downtrend. It starts in the beginning of April around 1.1700. The initial moves down come on strong volume, then there is a bit of retraction. Volume picks up slightly on the next portion of the downswing, before pausing. Afterwards the last and third portion of the fall comes on even weaker volume. Throughout the whole downtrend volume is decreasing. This is a classic example of an “unhealthy trend” and it cannot last much longer.
2. The start of May shows a spike in volume as bears and bulls fight for control at this bottom. The battle ends without a new direction at first.
3. On an increase in volume there is the start of an uptrend.
4. However as it continues, volume falls off and the currency turns down. We have entered a time of consolidation.
5. Here again a slight uptrend forms on increased volume, but there is a fall as big with high volume. A channel of resistance and support has formed in a true sign of consolidation. 

Volume can help identify new trends or it can be used to monitor the current trend if a trader is already on the right side of the price movement.

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