Volume Analysis
The number of shares/contracts traded, used to confirm price movements and identify potential reversals.
Plain English Explanation
Volume is the fuel behind price movements. Without volume, moves are suspect. With volume, they have conviction.
**The basic principle:**
- **Price up + High volume** = Strong buying, trend likely to continue
- **Price up + Low volume** = Weak move, potential reversal
- **Price down + High volume** = Strong selling, trend likely to continue
- **Price down + Low volume** = Weak selling, potential bounce
**Key volume patterns:**
1. **Volume Spike:** Unusual volume often marks turning points
2. **Volume Dry-Up:** Before breakouts, volume often contracts
3. **Volume Confirmation:** Breakouts should have above-average volume
4. **Divergence:** Price rises but volume falls = weakening trend
**Think of it this way:** Volume is like voting. If a stock rises on heavy volume, many traders "voted" for higher prices. If it rises on light volume, only a few agreed.
How It Works (Technical)
Volume is simply the count of shares or contracts traded. It's displayed as bars below the price chart. Average volume (often 20-day) helps identify when volume is unusually high or low.
When It Works Best
- Confirming breakouts (need above-average volume)
- Spotting exhaustion (volume spikes at extremes)
- Validating trends (volume should support direction)
- Identifying accumulation/distribution
- All liquid markets and timeframes
When It Fails
- Illiquid markets (volume too erratic)
- 24/7 markets like crypto (hard to define 'average')
- Pre-market/after-hours trading
- When institutional orders are hidden
- Very short timeframes (noise)
Common Beginner Mistakes
- 1Ignoring volume entirely (many traders do this)
- 2Expecting exact volume thresholds
- 3Not comparing to average volume
- 4Trusting breakouts without volume confirmation
- 5Using volume alone without price context
Pro Tips
- Look for volume climax at support/resistance
- Breakouts on 2x+ average volume are more reliable
- Volume often leads price at turning points
- Use On-Balance Volume (OBV) for trend confirmation
- Watch for decreasing volume in pullbacks (healthy)
Related Indicators
See Volume in Action
Upload your chart and get AI analysis using Volume and other indicators.
Try AI Chart Analysis