Volume (VOL) is one of the most commonly used indicators in technical analysis. It represents the total amount of a stock, futures contract, or other financial asset traded during a specific period. Volume reflects market activity and investor interest, helping traders assess the strength of a trend, the credibility of price movements, and potential reversal points. While volume is merely a numerical value, it provides clues about market momentum and trend changes. Below are all the usage techniques of the VOL (Volume) indicator to help you better understand and apply this tool.

1. Basic Understanding of Volume

Definition:

• Volume: The number of units of a financial asset traded over a specific period (e.g., intraday, daily, weekly). In the stock market, volume is usually expressed as the number of shares traded.
• Volume changes: The increase or decrease in volume reflects market participants’ interest and the market’s activity. Increasing volume during an uptrend is typically seen as a sign of a healthy trend, while decreasing volume during an uptrend may indicate weak momentum.

Usage Tips:

• Increasing volume in an uptrend: When the price rises along with increasing volume, it indicates that the uptrend is supported by more market participants, usually a sign of a healthy uptrend and optimistic market sentiment.
• Increasing volume in a downtrend: When the price falls with increasing volume, it often means that the downtrend is widely recognized by the market, and investors are exiting, signalling a possible acceleration in the downtrend.

Notes:

• Confirming price trends: Volume changes can help confirm the validity of price trends. For example, if the price rises but volume remains low, it may indicate a lack of support, increasing the risk of reversal.

2. Combining Volume with Price

Usage Tips:

• Volume and price both rising: When both price and volume increase, it indicates strong market sentiment and a trend with significant momentum. Investors may hold or add to their positions.
• Volume and price both falling: When both price and volume decline, it signals bearish sentiment, and the downtrend may accelerate. Investors should consider exiting or taking short positions.
• Price rising but volume decreasing: When prices continue to rise but volume decreases, it may suggest weakening momentum, a potential reversal signal. Investors should be cautious with long positions and avoid buying at highs.
• Price falling but volume decreasing: When prices fall but volume decreases, it indicates weakening bearish momentum, and the market may enter a consolidation or rebound phase. Investors should wait for further confirmation signals before taking action.

Practical Application:

• Trend confirmation: Changes in volume can be used to confirm the strength of a price trend. For example, when prices rise with increasing volume, investors may stay bullish; conversely, when prices rise with declining volume, they should remain cautious and prepare for potential reversals.

Notes:

• Risk of false breakouts: When the market breaks through key price levels, if there is no corresponding increase in volume, the breakout may be a “false breakout,” and the price may quickly retreat. An increase in volume is a critical indicator to confirm the validity of the breakout.

3. Volume and Trend Reversals

Usage Tips:

• Volume is one of the key indicators for identifying market reversals. Abnormal changes in volume often signal an impending trend reversal:
  • Top reversal signal: When the market is trading near its highs, if the price continues to rise while volume significantly decreases, it often indicates that the bullish momentum is weakening, and the market may be nearing a top. Investors should be alert to potential price corrections or trend reversals.
  • Bottom reversal signal: In a downtrend, if the price continues to fall while volume starts to increase, it indicates that buyers are entering the market, and the market may be nearing a bottom. Investors can watch for confirmation signals of a price reversal.

Practical Application:

• Trend confirmation after volume expansion: When the market approaches a top or bottom, changes in volume can provide early signals. For example, if prices rebound from a bottom with a significant increase in volume, it signals that market participants are actively entering, which is a strong buy signal.

Notes:

• Combining with other technical indicators: While volume can indicate the potential for a trend reversal, it should be used in conjunction with other technical indicators (e.g., RSI, MACD) to confirm the reversal signal’s validity.

4. Volume and Breakout Strategy

Usage Tips:

• Volume can help investors confirm the validity of market breakouts, particularly at key support or resistance levels, where a significant increase in volume is essential for a successful breakout:
  • Valid breakout signal: When prices break through important support or resistance levels, a significant increase in volume usually means the breakout is valid, and the market is likely to continue in the direction of the breakout. Investors can trade in the direction of the breakout after confirmation.
  • Invalid breakout signal: If prices break through support or resistance levels but volume does not increase significantly, the breakout may be false, and prices are likely to retreat. In such cases, investors should be cautious and avoid entering too early.

Practical Application:

• Support level breakout: When prices break below key support levels with increased volume, it indicates that the market is recognizing the downtrend, and prices may continue to fall. Investors may consider taking short positions.
• Resistance level breakout: When prices break above key resistance levels with increased volume, it indicates strong upward momentum, and investors may consider taking long positions.

Notes:

• Watch for retest confirmation: After breaking key price levels, the market may retest the breakout level. Changes in volume can help determine whether the retest is valid. If volume decreases during the retest and prices remain above the breakout level, the breakout is confirmed.

5. Volume Indicators (VOL) and Volume Moving Averages

Usage Tips:

• Volume moving averages (e.g., 10-day, 20-day volume moving averages) can help smooth out short-term fluctuations in volume and capture more significant trend changes:
  • Volume crossing above the moving average: When short-term volume crosses above the long-term volume moving average, it indicates a significant increase in market activity, possibly accompanying a price trend shift. Investors may look for buying or selling opportunities based on price movement.
  • Volume crossing below the moving average: When short-term volume crosses below the long-term volume moving average, it signals declining market activity, suggesting that the market may enter a consolidation or correction phase.

Practical Application:

• Trend confirmation and momentum assessment: Volume moving averages can help confirm market momentum changes. For example, when prices are in an uptrend, and the volume moving average is rising, investors may continue holding long positions; when the volume moving average flattens or declines, it may indicate weakening momentum, prompting investors to consider reducing their positions.

Notes:

• Noise filtering: Volume moving averages can effectively filter out short-term volume fluctuations, allowing investors to focus on more critical trend signals.

6. Combining Volume with Other Technical Indicators

Usage Tips:

• Volume is often used in conjunction with other technical indicators to increase the accuracy of trading signals:
  • MACD (Moving Average Convergence Divergence): MACD is a momentum indicator used to assess trend strength. When MACD generates buy or sell signals, an accompanying increase in volume makes the signal more reliable.
  • RSI (Relative Strength Index): RSI is an overbought and oversold indicator used to identify extreme market conditions. When RSI signals overbought or oversold conditions, combining it with volume can increase the accuracy of reversal signals. For example, when RSI is in the oversold zone, and volume increases, the market may be about to rebound.
  • Bollinger Bands: Bollinger Bands are used to assess market volatility. When prices break above or below the Bollinger Bands, changes in volume can help confirm the market’s breakout direction.

Practical Application:

• Multi-indicator trading system: By combining multiple technical indicators, especially volume with momentum indicators, traders can better assess the strength of a trend and the reliability of trading signals. For example, when both MACD and volume generate bullish signals, investors may consider adding to long positions.

Notes:

• Avoid over-reliance on a single indicator: Although volume is an important market indicator, it should not be used in isolation to make trading decisions. Combining it with other technical analysis tools is recommended to increase the accuracy of signals.

7. Volume and Price Divergence

Usage Tips:

• Volume and price divergence is a highly effective technical signal used to assess potential trend reversals:
  • Bullish divergence: When prices continue to make new lows, but volume does not increase or even decreases, it indicates that bearish momentum is weakening, and a reversal may be near. Investors should watch for signs of a price reversal and look for buying opportunities.
  • Bearish divergence: When prices continue to make new highs, but volume does not increase or even decreases, it suggests that bullish momentum is weakening, and a pullback may be imminent. Investors should be cautious with long positions and consider reducing or closing them.

Practical Application:

• Confirming reversal signals: Volume and price divergence is often used to confirm trend changes. Especially when the market is near a top or bottom, divergence signals can help investors identify trend reversals early.

Notes:

• Confirm other signals: Volume and price divergence is usually an early signal of reversal, but divergence alone does not always lead to immediate reversals. It is recommended to combine it with other confirmation signals (e.g.,

Summary:
Volume (VOL) is a crucial indicator of market sentiment and trends. By analyzing changes in volume, investors can gain better insight into the behavior of market participants. Combining volume with price movements and other technical indicators can significantly improve the accuracy of trend confirmations, breakout judgments, and reversal predictions. Whether through rising volume and price, volume-price divergence, volume moving averages, or pairing it with indicators like MACD or RSI, volume can provide traders with valuable market information. However, volume is just one aspect of market analysis. It is best used alongside other technical indicators and analysis methods to increase the chances of trading success.