Volume and On Balance Volume (OBV) when interpreted correctly can provide important information about the behavior of a stock.
Volume on a price chart shows the level of commitment of the buyers or sellers to the stock while the OBV indicator provides a simple yet extremely effective way to tell who is running the show. For example, rising OBV tells us that the buyers are in control of the stock, whereas declining OBV shows selling pressure.
Example - This daily chart of NGEN shows how volume can affect the behavior of price on a chart. A large change in volume coupled with a chart pattern can give a tip-off as to what may lie ahead in the next few weeks.
Trading Tip - A breakout accompanied by an unusually large volume can signal the start of a new trend.