Try Pro for Free!

Save 100% today! Apply code FREEMONTH at checkout. Limited time offer.

Sign up

Volume

What is Volume?

Volume is the number of shares or contracts traded in a security or an entire market during a given period of time. For every buyer, there is a seller, and each transaction contributes to the count of total volume. That is, when buyers and sellers agree to make a transaction at a certain price, it is considered one transaction. If only five transactions occur in a day, the volume for the day is five.

Volume is an important indicator in technical analysis because it is used to measure the relative significance of a market move. If the markets make a strong price movement, then the strength of that movement depends on the volume for that period. The higher the volume during that price move, the more significant the move.

Volume is also used to confirm price trends, breakouts, and spot potential reversals. If volume is increasing in an uptrend, it is considered a bullish signal. If volume is decreasing in an uptrend, it is considered a bearish signal. Similarly, if volume is increasing in a downtrend, it is considered a bearish signal. If volume is decreasing in a downtrend, it is considered a bullish signal.

How do you identify Volume?

Volume is typically displayed as a bar chart beneath a price chart. The length of each bar represents the total volume of transactions for the time period. For example, a volume bar that is longer than others indicates a higher volume of shares traded for that time period.

Volume can also be represented by a histogram beneath a price chart. The histogram shows positive and negative volume values, often colored green and red. The histogram is positive when volume is above the prior bar's volume and negative when volume is below the prior bar's volume.

Volume can also be represented by a line chart. The line chart shows volume as a line, typically colored green and red. The line is green when volume is above the prior bar's volume and red when volume is below the prior bar's volume.

Volume Indicators

Volume indicators are mathematical formulas that are visually represented in most commonly used charting platforms. Each indicator uses a slightly different formula, and therefore, traders should find the indicator that works best for their particular market approach.

Volume indicators are used to determine investors' interest in the market. High volume, especially near important market levels, suggests a possible start of a new trend, while low volume suggests traders uncertainty and/or no interest in a particular market.

Volume indicators are also used to validate price trends, breakouts, and spot potential reversals. If volume is increasing in an uptrend, it is considered a bullish signal. If volume is decreasing in an uptrend, it is considered a bearish signal. Similarly, if volume is increasing in a downtrend, it is considered a bearish signal. If volume is decreasing in a downtrend, it is considered a bullish signal.

The following are some of the most commonly used volume indicators:

  • Accumulation/Distribution Line
  • Money Flow Index
  • On-Balance Volume
  • Volume Rate of Change
  • Volume Oscillator

Invest now with our suite of advanced tools

Prosperse suite of tools