Trade Or Die
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volume spikes are useful when they 'interrupt' a trend - I remember a webinar I attended a while back and the presenter used the euro as an example, back when Greece was about to cave in. The euro was in a steady downtrend, when all of a sudden around the 1.3 area (I think) major support "appeared", resulting in a huge volume spike by the buying absorbing all of the selling and then some. The currency then reversed the downtrend and began to climb back up. Now on the volume chart you could clearly see the spike up, it was something like 3x the normal volume of the preceding bars.
However, I think it's most useful to look at volume in terms of supply and demand - aka, tape reading & the limit orders on the DOM, to establish strength/weakness at different chart levels, imo. If you just look at volume alone (which is traded contracts at that tick), all it tells you is how much interest there was. It doesn't tell you if the supply dropped off, or the demand dried up, or both.
However, I think it's most useful to look at volume in terms of supply and demand - aka, tape reading & the limit orders on the DOM, to establish strength/weakness at different chart levels, imo. If you just look at volume alone (which is traded contracts at that tick), all it tells you is how much interest there was. It doesn't tell you if the supply dropped off, or the demand dried up, or both.
