Volume in step with the trend

The traditional reading goes like this: in a healthy trend, volume expands on moves in the trend's direction and contracts on the corrections. If the upward legs of an uptrend run on high volume while the pullbacks in between run on low volume, participation is backing the trend's direction. This is called volume confirming the trend.

The opposite picture is a warning sign: if the legs in the trend's direction advance on progressively lower volume, the crowd carrying the move may be thinning. On the chart you see it as price printing new highs while the volume bars shrink a little at each high. This picture raises the POSSIBILITY that the trend is tiring. Before you take that warning seriously, though, check the calendar: over holidays and during the quiet hours of a session volume thins out anyway — those short bars report the calendar of participation, not the state of the trend.

Keep the line between a warning and a prophecy: weakening volume does not say the trend will end, only that the support behind it has thinned. Trends can travel surprisingly far on light volume. Volume never replaces the swing analysis you learned in level 2; it adds a layer of evidence on top of it.