Price action and volume interact to predict the likelihood of a current price move's duration. Think of volume as a scale to measure price strength; a price move up or down together with higher than normal volume indicates the move has strength and may continue. Investors are showing conviction behind increasing levels of buying or selling.

However, a price move up or down with average volume or less warns of weakness and lack of staying power. A lack of high volume could mean a majority of investors are standing aside or about to enter trades in the opposite direction. Such a move might be considered short-term and easily reversed. Let's explore a few examples of price/volume behavior and see how this applies.

(Daily chart - JDSU)

Looking at a daily chart of JDSU shows a rally in prices from the $100 level to $140 over Feb 14th - 23rd. Volume average increased steadily during this time to confirm strength behind the move.

Volume began to wane from this point into early March as new buying dried up. Prices met resistance, struggled and fell to $110. It could have been assumed that selling pressure was easing just when down volume began to increase near March 27th as further selling drove prices down in early April.

Prices rose from lows near $80 and bounced near this level several times while daily volume decreased. A signal that selling pressure was dwindling and a price bottom being formed.

Mid-May to early June saw volume gradually advance as prices rose, signaling strength behind the rally. Volume has since begun to fade as prices methodically advance. This price/ volume divergence could mean a pullback or correction may occur before the next breakout rally.

The 8+ point gain July 3rd was on a half-day's volume and inconclusive. Higher volume from this point on would signal new upward strength building once again.

(Daily chart - YHOO)

Yahoo enjoyed a nice rally from $155 to $180 on an increase in volume over two weeks time. Prices spiked along with volume measure until the plummet from $200 to $120 on very high volume. This gave clear warning for traders to stand aside or play the downside of this stock.

Volume continued to fall from mid-April to early May while prices stabilized, indicating selling pressure might come to an end.

Since mid-May prices have rolled along with up and down volume between $120 and $140 range. Volume has recently dropped way off while prices held near $120. Signs indicate a bottom may be in place near-term with increasing volume likely to mark the next rally.

(Daily chart - ORCL)

Here we join Oracle for a tumultuous ride. Volume and prices rise during the second half of February. Prices continue to rally while volume remains flat in March, telling us a top may be near. The stock sells off on heavy volume in April, rallies on decreasing volume from the bears only to fall once again as high volume returns. Remember, heavy volume behind rising AND falling prices mean bulls or bears respectively are in control.

What other price/volume behavior do you see later in this chart of ORCL and the others? Practice comparing the daily volume action in concert with rallies and sell offs until it becomes a habit. You will find yourself collecting extra profits or locking in gains according to the simple data shown here.

Daily charts help determine a move's strength over the next few sessions while price/volume on intraday charts pinpoint and confirm solid entry and exit points for trades.

Prices can certainly continue to rise or fall after volume grows or drops off. This doesn't mean you can't profit from trades still moving in your favor but serves notice to stay in for further potential profit or protect & exit accordingly.