Volume multiples

         Use the volume multiples question to identify significant changes in volume from one day to the next. Use the volume multiple question in conjunction with other questions to examine key trading days and the impact that changes in volume have on such days.

Example:

         Volume increases by 30% over the prior day and the market closes lower than the prior day.

Questions from Traders:

         What is the significance of a one-third increase in volume? If the market closes lower, does the volume increase validate a top?

Setting Up the Search:

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Answers:

         We constructed a compound search for days when the market closed lower than the previous day and also had a 30% increase in volume. There were 95 such days in our search. Examining these days, we saw that a lower close on increased volume generally signals a reversal of an uptrend or ushers in a period of stability in an up market. Rarely does an uptrend continue under these circumstances. Thus, traders would be well-advised to take profits on longs under this scenario.