In chart-pattern analysis, volume plays an important role as a secondary indicator. Volume indicates activity and money movement. When volume is high, there is a lot of activity and money changing hands; this makes it an important indicator to follow.

For the head-and-shoulders pattern, volume can also be used as a secondary indicator during the formation of the pattern, well before the breakout, to gain an idea of the pattern's strength. For example, the run towards the peak in the head should be on ______ volume compared to the peak formed in the left shoulder.

A. lighter
B. heavier
C. the same

Correct Answer: A

This should be a warning, as volume should move with trends, not against them. The peak formed in the right shoulder should be seen with even lighter volume than in either the head or the left shoulder. And again, the volume should be high when the neckline is broken (this is by far the most important area to watch in terms of volume).