Volume is an important factor that traders need to consider in trading. Especially the breakout trading brothers, the volume is a very important factor.

First of all, we need to understand what Volume is first okay? Volume can be understood simply as the number of lots that are traded within a particular time frame. Mass analysis is a fundamental but very important element in technical analysis. The volume provides traders with information about the strength of the price at a given point in time.


There are many ways to interpret changes in volume trends. It is common thinking that an increase in price with increased volume and a decrease in price with reduced volume is identified as an uptrend. And vice versa, if volume increases when the price falls and volume decreases when price increases, it indicates a downtrend.

The theory behind this is that an increase in price with increased volume suggests that an increase in more buyers than sellers will lead to a further upward price move and vice versa. So:
  • Price increases + volume is strong = the uptrend is sustainable
  • Price increases + volume is weak = temporary uptrend
  • Bearish price + strong volume = the downtrend is sustainable
  • Bearish price + weak volume = temporary downtrend
Usually, in an uptrend market, the volume is stronger when the price goes up and weaker when it goes down. Therefore, traders can fully use volume analysis for better entry points.

How?


You see the chart above. Assuming USD / JPY is in an uptrend, everything looks strong. Suddenly the price adjusted slightly and got a better price to buy up. But now there will be a trader who is afraid or hesitant to join or not. At this point, smart traders will consider volume. If they can clearly see that this correction has not been supported by significant volume, then they start buying.

Another role of volume

Volume not only provides a clue to the strength of a trend but is a confirmation of the validity of the breakout and analysis.

A high-volume breakout is considered a real breakout. Meanwhile, a breakout of resistance accompanied by weak volume often leads to a false breakout. The same goes for support or trendline breakout. So:
  • Resistance break + strong volume = true breakout
  • Resistance break + low volume = false breakout
  • Support break + strong volume = true breakout
  • Break of support + weak volume = false breakout
  • The uptrend is broken in the downtrend + strong volume = High probability of reversal
  • The uptrend is broken in the downtrend + weak volume = Low reversal possibility
  • The bearish trend is broken in the upwards direction + strong volume = High probability of reversal
  • The bearish trend is broken in the upside + weak volume = Low possibility of reversal