Investing with Volume Analysis: Identify, Follow, and Profit from Trends

Executive Summary

Buff Pelz Dormeier's "Investing with Volume Analysis" is the most comprehensive single-volume treatment of volume analysis in technical market analysis available. Dormeier argues that volume -- the number of shares or contracts traded -- is the most underutilized dimension of market data, and that incorporating volume into technical analysis provides critical information about trend strength, institutional participation, and the sustainability of price movements that price-only analysis misses. The book traces volume analysis from its historical roots in Dow Theory through modern quantitative applications, introduces several proprietary indicators including the Volume Price Confirmation Indicator (VPCI), and demonstrates their application across different market conditions and investment horizons.

Core Thesis

The central argument is that volume is the cause of price movement, not merely a byproduct, and that analyzing volume patterns provides insight into the conviction, participation, and institutional commitment behind price trends that price alone cannot reveal. Dormeier contends that the neglect of volume analysis in modern technical practice (despite its prominence in classical Dow Theory) represents a significant missed opportunity, and that traders and investors who incorporate volume analysis gain a decisive informational advantage in identifying, following, and profiting from market trends.

Chapter-by-Chapter Summary

Chapter 1: Two Perspectives of Market Analysis

Establishes the two fundamental approaches to market analysis -- fundamental (analyzing financial statements and economic value) and technical (analyzing price and volume patterns) -- and argues for the legitimacy and complementary nature of both. Develops the case that technical analysis, when properly practiced with volume, captures information about market participant behavior that fundamentals cannot.

Chapter 2: The History of Technical Analysis

Traces the evolution of market analysis from ancient Babylonian commodity trading through Edo-period Japanese candlestick charting, early European markets, and the foundational work of Charles H. Dow. Examines how Dow Theory originally incorporated volume as a confirmation tool, how subsequent practitioners (William Peter Hamilton, Robert Rhea) developed the framework, and how the rise of fundamental analysis temporarily eclipsed technical approaches before modern computing revived interest.

Chapter 3: Price Analysis

Covers the fundamentals of price-based technical analysis: chart types (line, bar, candlestick), trend identification (higher highs/higher lows), support and resistance, moving averages, and trend channels. Establishes the baseline of price analysis before introducing volume as the critical enhancing dimension.

Chapter 4: Volume Analysis

The foundational volume chapter. Defines volume terminology, explains how volume data is collected and reported, and develops the core principles of volume interpretation:

• Volume validates price (high volume on price moves = genuine; low volume = suspect)
• Volume liberates liquidity (without volume, positions cannot be efficiently entered or exited)
• Volume substantiates information (institutional activity reveals itself through volume)
• Volume reveals convictions (the intensity of buying/selling pressure)
• Volume expresses interest and enthusiasm (the level of market participation)
• Volume denotes disparity of opinions (high volume at turning points)
• Volume is the fuel of the market (trends require volume to sustain)
• Volume exposes truth (volume divergences reveal hidden weakness or strength)
• Volume is the cause; price is the effect

Chapter 5: Volume Indicators -- Category I: Volume Price Indicators

Examines the first category of volume-based indicators that combine volume with price data:

• On-Balance Volume (OBV), pioneered by Joseph Granville
• Volume-Price Trend
• Money Flow Index
• Dormeier's proprietary Volume Price Confirmation Indicator (VPCI), which measures whether volume is confirming or contradicting the price trend shown by moving averages

Chapter 6: Volume Indicators -- Category II: Volume Accumulation/Distribution Indicators

Covers indicators measuring the balance of buying versus selling pressure:

• Accumulation/Distribution Line (Chaikin)
• Chaikin Money Flow
• Williams Accumulation/Distribution
• Price and Volume Trend Each indicator is explained mathematically, tested historically, and evaluated for practical utility.

Chapter 7: Volume Indicators -- Category III: Volume Oscillators

Examines oscillator-type volume indicators:

• Volume Rate of Change
• Volume Oscillator
• Klinger Oscillator These indicators help identify volume cycles and momentum shifts that precede price changes.

Chapter 8: Volume Indicators -- Category IV: Volume Flow Indicators

Covers indicators measuring the directional flow of volume:

• Positive/Negative Volume Index
• Market Facilitation Index
• Volume Weighted Moving Average

Chapter 9: Volume Indicators -- Category V: Tick Volume Indicators

Addresses indicators using transaction-level (tick) data:

• TICK indicator
• TRIN (Arms Index)
• Volume-Weighted Average Price (VWAP) These are particularly relevant for intraday traders and institutional investors.

Chapter 10: Volume Indicators -- Category VI: On-Balance Volume Variants

Examines variations and improvements on Granville's original OBV concept, including Dormeier's proprietary Capital Weighted Volume (CWV), which weights volume by market capitalization to more accurately reflect the economic significance of trading activity.

Chapter 11: Volume Indicators -- Category VII: Composite Volume Indicators

Introduces indicators that combine multiple volume measures into composite signals, including Dormeier's Trend Trust Indicator and the Anti-Volume Stop Loss method, which uses volume analysis to determine optimal stop-loss placement.

Chapter 12: Volume and Market Breadth

Extends volume analysis beyond individual securities to market-wide breadth measures, examining how aggregate volume patterns across many stocks reveal the health of overall market trends.

Chapter 13: Putting It All Together

Synthesizes the volume analysis framework into a practical investment methodology, demonstrating how to combine multiple volume indicators for trade timing, trend confirmation, and risk management.

Key Concepts

1. Volume as Cause, Price as Effect: The foundational principle that volume drives price movements, not the reverse. Changes in volume patterns precede and predict changes in price trends.
2. Volume Price Confirmation Indicator (VPCI): Dormeier's proprietary indicator measuring whether volume confirms or diverges from the price trend shown by moving averages, providing early warning of trend exhaustion or hidden strength.
3. The Seven Types of Volume Indicators: Volume-Price, Accumulation/Distribution, Oscillators, Flow, Tick, OBV Variants, and Composite -- providing a taxonomy for understanding the full spectrum of volume-based analysis.
4. Capital Weighted Volume: A proprietary method that weights trading volume by market capitalization, providing a more economically meaningful measure of trading activity than raw volume.
5. Anti-Volume Stop Loss: A volume-based methodology for placing stop-losses at levels where volume analysis indicates genuine support/resistance, rather than arbitrary percentage or ATR-based stops.
6. Volume Divergence: When price makes new highs (or lows) without corresponding volume expansion, the trend is suspect and likely approaching exhaustion. Volume divergence is the single most important volume signal.
7. Dow Theory Volume Principles: Volume should expand in the direction of the primary trend and contract on corrective moves. Violation of this principle warns of trend deterioration.

Practical Applications

• Use the VPCI to confirm whether current trends are supported by volume or running on fumes
• Apply volume divergence analysis to identify trends approaching exhaustion before price reverses
• Use Capital Weighted Volume to filter out noise from low-capitalization stocks in market analysis
• Implement the Anti-Volume Stop Loss method for volume-informed stop placement
• Combine multiple volume indicator categories for more robust signal confirmation
• Integrate volume analysis into existing technical analysis frameworks as a confirmation/divergence overlay
• Monitor market breadth volume indicators for early warning of market-wide trend changes

Critical Assessment

"Investing with Volume Analysis" is the definitive reference on volume analysis in technical trading, filling a genuine gap in the literature. Dormeier's encyclopedic coverage of volume indicators -- organized into seven categories -- provides both historical context and practical application that no other single volume offers. The proprietary VPCI indicator is a genuinely useful contribution to the field. The book is thoroughly researched, with extensive references to academic studies validating volume's predictive power. However, the book's comprehensiveness works against its accessibility -- at times it reads more like a reference encyclopedia than a practical guide, and the sheer number of indicators discussed can be overwhelming. The book would benefit from a clearer hierarchy of which indicators are most valuable and when. Some readers may also find the prose style occasionally promotional regarding Dormeier's proprietary indicators.

Key Quotes

• "Volume is the fuel of the market."
• "Volume validates price."
• "Volume is the cause; price is the effect."
• "For every stock trade that takes place, three key pieces of information are recorded: price, time, and size. If you are only looking at prices, then you are throwing out a whole lot of key information."

Conclusion

"Investing with Volume Analysis" is an essential reference for any serious technical analyst or active investor seeking to incorporate volume into their analysis. Its greatest contribution is establishing volume as an equal partner with price in market analysis, countering the widespread neglect of volume in modern technical practice. Dormeier's proprietary indicators, particularly the VPCI and Capital Weighted Volume, represent genuine innovations. For practitioners willing to invest the time in mastering its comprehensive content, the book provides tools and frameworks that can significantly enhance trend identification, confirmation, and risk management across all time frames and market conditions.