Volume Indicator - Technical Analysis, Average, Trading, & How to Use

Volume plays an important role in technical analysis and it is one of the key technical indicators in stock markets. Watch our easy-to-understand video from the #LearnWithUpstox series to know how to study volume patterns using the volume indicator.

Welcome back to a new blog of ‘Learn with Upstox’. The volume indicator is the most important indicator and other indicators are derived from it, like ADX. So, what is volume?

 Volume means the number of shares traded at one time, for example the total number of shares traded in a day is called volume. This indicator helps you find breakouts, fake breakouts and it is used to create a number of other indicators. But how can you apply this?

 So in the chart, it has a very strong uptrend. How can you see this? By going through the list of indicators and selecting volume. In the chart you will see volume depicted by the red and green bars at the bottom, The volume moving average is depicted by the black line dragging across. Now logic says that the biggest green bar should be good volume, but reality doesn’t work like this. A good high volume should break the black line. Any that crosses the black line is good, as it means volume breakout.

 Let’s look at these four cases:

1.When volume is increasing and price is also increasing.

 The market is bullish, and becoming more bullish, the price is rising and buyers are ready to buy at higher prices. The bars indicate that the overall participation in the stock is high, both buyers and sellers are increasing. Volume alone means nothing, along with increase in price it depicts a strong bullish market.

2. Price is increasing, but volume is falling.

 This means the participants are very low, but the price is still opening. Hence, the public is not interested in the high market, because they are fearful of a fall. This is a weak bullish market. It is an early sign of reversal. So, you have to be cautious.

3. Price is falling, but volume is increasing.

 This means participation in the stock is great, the volume is breaking through the black line. More people are buying and selling this stock, even though the price is falling. This means the public is very interested. This is a strong bearish market. Short selling is happening a lot. This means the chances of it falling further are higher.

4. Price and volume, both are falling.

 Here you will notice that the volume bars are quite small, and quite a few of them end below the black line. This means the participation in the market is very low, among both sellers or buyers. The price of the stock is also falling. This is a weak bearish market. This is an early sign that may change the market into bullish reversal, but we cannot predict with surety. So you must be cautious and wait for the uptrend.

 Should one look at volume indicators on a daily, weekly, monthly basis or how often? Well, if you are going to trade on a daily basis, look at it every 5 – 10 minutes. If weekly, then look at it hourly. If you are going to trade in a month, look daily. The time frame depends on how long you want to participate in the trend. Volume is an incomplete indicator if you do not look at the correlation with price.

 I hope this blog has helped you in taking a step to read charts with volume indicators. If you have any questions, please leave a comment below! Happy technical analysing!