1. Definition of volume

Trading volume is simply the number of stocks or commodities that are traded over a certain period of time, such as a day, week, or hour.


The theory behind volume analysis based on the belief that above-average or increased volume signals traders' activeness and lower or lower volume indicates a lack of enthusiasm of traders in the market. school. Consequently, many traders view volume as a potential factor in the real power behind price action.

The important thing to keep in mind here is this: Not every rising or falling volume signals something of great significance. The key to using volume analysis properly would be to consider price action combined with significant movements in trading volume.

2. Use volume as indicator signals: What traders are looking for

In this section, we will look at volume together as an indicator, and we will look for convergence or divergence to look at the strength of a trend.

Convergence - volume moves in the same direction as price.


Divergence - volume moves in the opposite direction of price.


The above is possible possibilities in a correlation between price and volume. So what will they look like in specific cases?

Bullish Signals
  • The increase breakout is accompanied by mass convergence
During an uptrend and in sideways markets, the price will sometimes run into a resistance level. When the price breaks above the previous resistance, the breakout is often thought to be of greater significance if it is accompanied by medium volume or large volume, as opposed to the breakout that accompanies volume. Low will often be a weak breakout and easy to fail.

  • The uptrend is accompanied by volume convergence
When an uptrend is confirmed by growth in volume above the average volume, it shows an investor's positivity towards the stock or asset, and such a positive can lead to an increase in volume. to force to buy even more at higher prices.

  • The uptrend is accompanied by volume divergence
When an uptrend is not confirmed by an increase in trading volume above the average, it means that investor enthusiasm is limited. While stocks and assets may continue to appreciate, however, we are inclined to look for other potential deals.


Bearish Signals:
  • Down breakouts accompanied by volume divergences
During a downtrend and in sideways markets, prices will sometimes run into a support level. When the price breaks down below the previous support level, a breakdown is said to have greater significance if it is accompanied by volume above average or above the average. Contrary to the breakout associated with low volume will usually be a weak break and is unlikely to succeed.

  • The downtrend is accompanied by volume divergence
When a downtrend is accompanied by an increase in trading volume above the average, it means that there is greater investor interest in the stock or asset and greater concern. That mindset can lead to even more selling force at lower prices.

  • The downtrend is accompanied by the convergence of volume
When a downtrend is not accompanied by an increase in a trading volume greater than the average, it means that investor interest is limited. While stocks or assets may continue to fall in value, traders will be more inclined to choose asset stocks with a larger trading volume.

3. Conclusion

Volume reflects what traders actually do in the market and as a result, is a very useful measure of investor sentiment. As a general rule, any breakout of price or trend associated with above-average volume is considered to be of greater significance than a price movement that is not accompanied by an increase in volume. Besides, volume is also a measure of the preference of traders and they will be inclined to buy/sell with stocks or assets with larger trading volume. Single trade volume will not be used as an entry signal but it will be more of a complement to price action.