Master the fundamentals of volume analysis and learn how trading volume confirms price movements, validates breakouts, and provides crucial insights for technical analysis decisions.
Volume represents the total number of shares traded during a specific time period. It's a crucial indicator that measures the strength and conviction behind price movements.
Rising prices with increasing volume confirm uptrends
High volume breakouts are more reliable
Climax volume often signals trend reversals
This chart demonstrates how volume patterns relate to price movements. Notice how volume spikes often precede significant price changes.
OBV measures buying and selling pressure by adding volume on up days and subtracting volume on down days.
OBV = Previous OBV + Volume (if close > previous close)
OBV = Previous OBV - Volume (if close < previous close)
VPT combines price and volume to show the relationship between price changes and volume flow.
VPT = Previous VPT + Volume × (Close - Previous Close) / Previous Close
CMF measures the amount of money flow volume over a specific period, helping identify accumulation and distribution.
Strong bullish signal indicating healthy uptrend with institutional support.
Strong bearish signal showing heavy selling pressure and distribution.
Weak signal suggesting lack of conviction and potential reversal.
Extremely high volume that often signals trend exhaustion and potential reversal.
Significantly low volume indicating lack of interest and potential trend change.
High volume accompanying price breakouts from support/resistance levels.
When price and volume move in opposite directions, signaling potential reversal.
Analyze the following scenario and determine the most likely outcome:
Scenario:
A stock breaks above resistance at $50 with volume that is 3x the average daily volume. The next day, it continues higher to $52 on normal volume.
What does it mean when OBV is rising while price is falling?
Strong bullish signal
Strong bearish signal
Weak signal, watch for reversal
Potential trend reversal