If you think about price itself being the “mind” of the market – consider that “volume” is the heart.
Try to think about volume as the amount of people behind a given move, or even the “emotional excitement” (or lack there of) surrounding moves in a given asset. Volume measures the level of commitment in a move, and lets you know how many people are behind it.
When an asset makes a considerable move in price on very low volume ( as USD has now done over the past two “holiday” days ) we deduce that very few traders /investors are actually involved (relatively speaking) – and that the movement lacks the commitment one would like to see when looking for momentum.
Simply put – if there are only buyers (and in this instance to “few” sellers) an asset can make considerable leaps in price with little actual participation. One could argue that on low volume days markets aren’t exactly balanced, so it’s not at all uncommon to see dramatic movements in price – even though fewer people are actually involved. Counter intuitive yes. Glad you’ve now got it under your belt? Excellent.
A valued reader asked me just today, if I was considering throwing in the towel on my USD shorts. A valid question considering the giant leap in price we’ve seen here today. Hopefully, now that you as well have the ability to factor “volume” into your analysis – you’ll be able to ride out a couple of these instances and stick to your guns / trust your instincts and not let the market push you around.
All good in Kingdom Kong – I haven’t even blinked.
Have a great weekend everyone.