Volume represents the total amount of trading activity in that market for that timeframe. The volume is an indicator of great importance and helps us with crucial information on selling or buying the stock.
General rules:
Bullish Signs:
General rules:
- Volume is an independent variable from price.
- Volume typically goes with the trend. For example, in a bullish cycle, the up volume is usually larger than down volumes. There is no forecasting value in this. If we have a growing trend, we also have a strong growth trend and then a volume in the stock market or forex trading. So a combination of rising volume and the rising price is normal.
- Volume divergence: Volume normally leads price during a bull move. A now high that is not confirmed by volume should be regarded as a red flag. This is called volume divergence. Volume divergence is abnormal and either warns of an impending trend reversal or emphasizes the significance of any breakouts.
- Total disinterest: When the price volatility shrinks to almost nothing, and volume does the same this indicates total disinterest. When the situation is finally resolved, this is often followed by an above-average price move. The quieter the price and volume action relative to preceding downtrend, the more explosive the subsequent rally is likely to be.
- Very narrow trading range indicates buyers and sellers evenly matched. Extremely low volume indicates fine technical balance. Price decline and volume expand as a bearish signal and vice versa.
- Parabolic blow-off is an event when the price hits ATH and the Volume explodes and is as large as last a few days of trading combined. This is a bearish sign!
- Rising volume on a downside breakout of moving averages or trend lines is a bearish sign.
- Sideway trend with increasing volume which is happening after a recent uptrend is considered a bearish signal.
- Small rounding top price movement with rounding bottom volume is abnormal and is a bearish signal.
Bullish Signs:
- Selling climax is the opposite of parabolic blow-off. It occurs when the price falls under a certain level and panic selling is triggered. That is a bullish sign.
- Low volume at lower prices is a bullish sign. This could occur in double bottoms or bear market when the price goes slightly lower than the previous trough, but the volume is significantly lower at the new low.
- Heavy volume on a sideway trend after a decline is usually a very reliable signal that the bottom has reached.
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