Declining Volume During Pattern Formation

Another characteristic of volume action which has been quite fully discussed in our
previous Studies, is the tendency for volume to decline during the period of
formation
of a technical area pattern. This shrinkage in activity is especially conspicuous,
as a rule, as the formation nears completion, just before a break-out occurs.
Knowledge
of this rule is useful to the technical trader because it helps him to decide
whether or not a certain price pattern is classifiable as a dependable forecasting
formation.
Where the price action presents a well-defined area picture the volume
action is confirmatory but not critical; where the price action presents a poorly
defined pattern, the volume action frequently casts the deciding vote. It is a
common
error of beginners to see technical formations where none exist; the application
of the volume test to those situations will help them to avoid incorrect conclusions
and profitless trades.