According to Dow theory, the main signals for buying and selling should always be based on the price movements of the indexes (Price Confirmation).Volume is used as a secondary indicator to help confirm what the price movement is suggesting.
It means volume should increase when the price moves in the direction of the trend and decrease when the price moves in the opposite direction of the trend.
For example, in an uptrend, volume should increase when the price rises and fall when the price falls. The reason for this is that the uptrend shows strength when volume increases because traders are more willing to buy with the belief that the upward momentum will continue to grow. Low volume during the corrective periods signals that most traders are not willing to close their positions because they believe the momentum of the primary trend has not been finished yet.
Conversely, if volume runs counter to the trend, it is a sign of weakness in the existing trend. For example, if the market is in an uptrend but volume is weak on the up move, it is a signal that buying is starting to dissipate. If buyers start to leave the market or turn into sellers, there is little chance that the market will continue its upward trend. The same is true for increased volume on down days, which is an indication that more and more participants are becoming sellers in the market.
Once a trend has been confirmed by volume, the majority of money in the market should be moving with the trend, not against it.
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