OK, so we learned that the averages must confirm each other to prove the validity of a potential trend. But beyond that, the underlying market must also be accompanied by volume that also confirms the validity of the trend.

Simply put, volume should increase in the direction of the trend and decrease during a correction.

So, if it’s an uptrend, the volume will rise and fall along with the prices. Similarly, in a downtrend, the volume will increase during the decline and decrease during the upward corrections. Either way, the volume confirms the trend.

Charles Dow based his signals completely on the closing prices as he regarded them as the most important. He considered volume to be a secondary but important factor. Nevertheless, volume is a key element in technical analysis and a leading indicator as well. It helps traders determine the market liquidity and gauge and confirm trends and trend reversals in the market.

And now, we move on to the final principle. See you soon!