Volume Analysis

Why Volume Matters

Volume measures the number of contracts or units traded in a given period. It's the closest thing to a real-time poll of market conviction. A price move on high volume has broad participation — many traders agree on the direction. A move on low volume has less conviction and is more likely to reverse.

In stock and index markets, volume data is reliable because all trades go through a central exchange. In forex, which is decentralised, volume data represents your broker's flow — it's directionally useful even if not globally accurate.

Volume Confirms Trends

In a healthy uptrend, volume should increase as price rises and decrease during pullbacks. This shows buying pressure is stronger than selling pressure. If a new price high occurs on declining volume, the trend may be losing momentum.

The same applies in reverse for downtrends: volume should increase on down moves and decrease on rallies.

Volume at Key Levels

Volume spikes at support and resistance levels tell you who's winning the fight. A high-volume rejection at resistance suggests sellers overwhelmed buyers — the level is holding. A high-volume breakout through resistance suggests genuine demand and a higher probability of follow-through.

Low-volume breakouts are suspicious. They may be 'fakeouts' — brief moves beyond a level that quickly reverse as there's no real demand behind them.

Volume Indicators

Several tools help interpret volume data. On-Balance Volume (OBV) adds volume on up days and subtracts it on down days, creating a running total that should confirm the price trend. Volume Profile shows how much volume traded at each price level, highlighting zones of high activity (potential support/resistance). VWAP (Volume Weighted Average Price) is widely used by institutional traders as a fair-value benchmark.