Here is a 4 hour chart of the GBP/USD going back about a year. I am posting this not only to detail the reasons for my current short position, but to provide a great example of longer term price/volume divergence. As well, we can take from this chart the idea that as traders, we cannot ignore everything, and only focus on one aspect such as technicals, but we must take into account all the many pieces of information that are out there to be analyzed. This does not mean that you need to enter/exit trades based upon all of these other things, but just keep them in mind, because I assure you there are plenty of other traders looking at things you may believe to be unimportant, just as you are following many things that other traders are missing. I am pounding the importance of PRICE/VOLUME RELATIONSHIPS. VOLUME CONFIRMS PRICE, PRICE CONFIRMS MASS OPINION. Okay, it's not simply black and white, but to the degree that two pieces of data can help, there are no others in my opinion that do a better job of showing you the true picture of a trade's internal capabilities than PRICE AND VOLUME.
Here we have a very obvious divergence between the direction of prices (upward) and the strength of volume (decreasing) that began almost exactly as this pair bottomed at the beginning of the year. We also want to look at the time compression relationships, so do not just hop on a trade because you see a divergence, but overall, the existence of a price/volume divergence can help put you on the correct side of the market.
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