When analyzing price and volume, we are looking to see the interest in the stock at certain prices and when the stock experiences it's fluctuations. I believe that seeing big green bars makes us think that there is big money buying, and big red bars means there is big money selling. This may or may not be the case. It can be that that is the case, and I can be over complicating it. At times, I will concede that colored volume bars can tell us wonders, but our job is not to look at colors and guess what happens next. I believe that most traders using technical analysis rely heavily on colored volume bars, and would not know what to do without it.
Colored volume bars are a trick. They trick our eyes, and our eyes show our mind what it is shown. When we are shown colored volume, I believe that the relationship between price and volume, our only concern, is overlooked. The colored volume bars draws so much attention, that, we are forced to analyze price and volume as two separate entities. And that can cause financial destruction. For example, if a stock has made a substantial move up and is in the middle of bull flagging, a big green volume bar would tell us that the stock is ready for a next leg up. But had we simply looked at the spike in interest at these levels, green or red, we would assume a much more professional and correct thesis. And that is: We see the big spike of volume on this bull flag action. That means a lot of money bought and a lot of money sold. But what did the smart money do? Green or red will not tell us. Tomorrow's action will. If we had a huge volume spike, that means that the smart money is showing their hand. Are they buying, revealing their ability and interest in moving it out of the flag and to a next leg higher, or are they distributing shares and revealing that the stock no longer has their bullish support. Well, if the next day we close on/near highs or breakout, the big volume of yesterday was probably smart money, and we should prepare for higher prices. If the next day, we close on lows/middle, do not breakout, breakdown, or breakout with no volume, or breakout but close near the lows, than we must be skeptical and assume the smart money has left. Those colored volume bars do not force us to make this correlation, it forces to look at volume to be told when to buy, and price shows the price we buy at. But this is just one example of how looking at pure volume, no colors, and price reaction is our key tell to what we should prepare for. Of course, many excellent traders are able to use colored volume bars extremely constructively, and still make excellent correlations between price and volume. I am not there yet. So i believe that the true way to get to be that good is to look at it simply. Supply and demand moves the market. Green does not say demand and red does not say supply. The reaction to big volume by price action tells us.There are so many patterns that result in a big red or green bar and causes us to automatically diagnose, or more like predict, the end result. However, removing this feature and looking at simple volume without being fed misleading information, we are forced to realized that only the next day's price action will tell us who did the buying and who did the selling. Thank you so much and I hope you are having a great weekend
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