Using Volume As a Leading Indicator

There’s a common phrase in trading, that says “volume precedes price.” This is in reference to large traders taking positions in assets ahead of a price breakout. 

This behavior is more difficult to spot, and technical analysis tools such as the On-Balance Volume indicator – also called the smart money indicator – can be used to predict the presence of these larger players taking action ahead of the herd.

However, this can also be indicated by a change in volume from selling to buying. This occurs slowly, and isn’t always visible. In the same ascending triangle example from the previous topic, trading volume shows that at first sellers are dominating, but it slowly switches to buyers in control.

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