Volume

• A trend that moves on steady volume is likely to continue
• Falling volume shows that the supply of losers is running low and trend is ready to reverse.
• A burst of extremely high volume gives the signal that a trend is nearing the end.
• During a rally
  • Rising volume shows that more buyers and short sellers are pouring in. Buyers are eager to buy even if they have to pay up, and shorts are eager to sell to them. Rising volume shows that losers who leave are being replaced by a new crop of losers.
  • Shrinking volume shows that bulls are becoming less eager, while bears are no longer running for cover. The intelligent bears have left long ago, followed by the weak bears who could not take the pain.
  • Falling volume shows that the fuel is being removed from the uptrend and is ready to reverse.
• When volume dries up during a decline, it shows that bears are less eager to sell short, while bulls are no longer running for the exits.
  • Falling volume identifies an area which a downtrend is likely to reverse.
  • If today's volume is higher than yesterdays volume, then the trend is likely to continue.

Trading rules of volume:

• High volume confirms trends. If prices rise to a new peak and volume reaches a new high, then prices are likely to retest or exceed that peak.
• If the market falls to a new low and the volume reaches a new high, that bottom is likely to be retested or exceeded. A "climax bottom" is almost always retested on low volume, offering an excellent buying opportunity.
• If volume shrinks while a trend continues, that trend is ripe for a reversal. When a market rises to a new peak on lower volume than its previous peak, look for a shorting opportunity.
• Watch volume during reactions against the trend. When an uptrend is punctuated by a decline, volume often picks up in a flurry of profit taking. When the dip continues but volume shrinks, it shows that bulls are no longer running or that selling pressure is spent. When volume dries up, it shows that the reaction is nearing an end and the uptrend is ready to resume. This identifies a good buying opportunity. Major downtrends are often punctuated by rallies which begin on heavy volume. Once weak bears have been flushed out, volume shrinks and gives a signal to sell short.

You can use a moving average to define the trend of volume. The slope of a 5 day exponential moving average of volume can define volumes trend.