In general about technical analysis and role of the volume in it.
In many references, you may find "Technical analysis" defined as a study of price movements for the purpose of predicting trend development. In reality, it would be correct to say that technical analysis is the study of the movements of a stock/index or any other financial commodity for the purpose of predicting the future trend direction. This is a study which is based on the analysis of the current prices and volumes, comparing them to historic prices and volumes and looking for similarities that may help to define possible future trend development.
As you know, the movement of a stock/index or other commodity is always described by the change in price, trading volume during this price change and change in volatility. In addition, an index movement is described by the number of advance/decline stocks and by advancing and declining volumes. It would be wrong to state that technical analysis is an art of price analysis only and be focused only on price. By looking solely at price, a trader's vision is limited and he or she will be unable to see the basics processes that describe the cause of the price movement. That is why price, volume, volatility and advance/decline data must be analyzed in harmony. Only a complete analysis of the movement of a stock/index can provides the complete picture of this movement and can be considered to be an appropriate source for making a trading decision.
In technical analysis you always compare current action to history. Even when you do not think about that, your trading decision is based on the analysis of history. If you trade an MACD histogram on its crossovers with zero line, you do it because as a result of the history analysis, you know that this is a good entry/exit point. Even if you do not analyze history literally, indirectly, you always use the historical research results of professional analysts who have developed technical indicators.
You should always look at the history to check what indicator settings work best. Below are a few Technical Analysis Tips that can help in starting your own analysis:
Technical analysis is not an exact science. Technical analysis does not give any guarantee about future trend direction. It takes time and takes considerable experience to master technical indicators.
Technical Studies are the main tools in technical analysis. Technical indicators are used to describe price, volume, volatility and advance/decline data changes. They enable you to study the movements of a mathematical model of the stock, index or other financial commodity and compare them to similar, historical movements. Not all studies work the same and, depending on the security traded, different technical indicators may be selected. It is the responsibility of each individual trader to find a set of technical studies that fit his or her specific needs. One indicator may generate excellent buy and sell signals, while another may not work for you at all.
Charts are the main tools that enable you to analyze and monitor technical studies. The majority of active investors (who make trading decisions) use charts. They are the best tools to use to analyze, test and monitor a traded security. The majority of retail and institutional traders use charts in their technical analysis and base their trading decisions on signals generated by technical studies of the charts.
There are no bad technical indicators. Most indicators enable you to detect buy-and-sell points. The problem could be in the implementation. Some technical indicators may require an adjustment whenever the longer-term trend changes or volatility level changes.
If you trade in real-time, you must analyze and monitor data in real time. If you do not trade in real time, it still recommended that you study charts on a daily basis. The stock market is constantly changing and, if do not track charts, you may miss important changes that can dramatically affect your portfolio.
Technical analysis is only a beginning. Technical analysis provides you with the source for making a trading decision. Besides that, you have to develop market timing trading strategy: you need to know what to trade, how much to invest into a trade, how much commissions you will pay, when you should fix your profit, what to do if the price goes in a direction that is opposite to the trade, etc.
Do be careful with free advice from internet and media sources! Most of the media news is negative. It is the job of media reporters to find something bad, something negative and scandalous about a person or company. People like to see it and that is what the media sells. In addition, they give you facts after they happen. So, do not base your trading on the TV news - do your own analysis! In the end, it is your money that is on the table!
The current technology gives you access to professional tools that previously were available only to institutional traders. Be sure that you have all of the data that you need - price, volume, volatility, advance/decline data, etc. Otherwise, you could be behind other traders and your portfolio could become food for other successful professional traders.