Seek the advice of a qualified finance professional before making any investment and do your own research to understand all risks before investing or trading. TrueLiving Media LLC and Hugh Kimura accept no liability whatsoever for any direct or consequential loss arising from any use of this information. My goal is to help you master both the technical (strategies) and transpersonal (mindset) sides of trading so you can create more freedom in your life and be your truest expression of I AM. The real benefit of trading that most people miss is that it’s one of the most direct paths to deep personal development. Here is an example that I found of a strong trend being reinforced by volume. As we saw with the oil example above, when volume starts to decrease, price starts to drop.

Volume indicators don’t only help you to avoid trading certain breakouts that are doomed to fail but also helps you confirm whether the opposite direction presents a profitable trading setup. In other words, a volume indicator can help you identify a different trading opportunity when a breakout has failed. In trading breakouts, most traders look for the price to close above a resistance level before placing their trades.

For example, the Klinger oscillator sums the accumulation (buying) and distribution (selling) volumes for a given duration. Volume indicators refer to mathematical formulas visually depicted in generally employed charting platforms. Each indicator uses a little different formula, and traders should find the indicator that serves best for their market approach. In an increasing or decreasing market, sharp moves are seen in price and a sharp increase in volume, indicating the possible end of a trend.

Once price broke through $10.00, new participants failed to enter the market as represented by the declining/flat volume. We use our knowledge of participant activity to confirm trends, breakouts, and reversals. Volume increases as more market participants (buyers and sellers) enter the market. For example, if you buy 100 shares of TSLA from a seller, the total volume for that transaction is 100.

  • This could be strange, since large traders usually refrain from trading before high-impact news releases.
  • This is exactly what the 1st row in the volume trend table indicates – expectation turns bullish when both the price and volume increases.
  • This volume trading strategy uses two very powerful techniques that you won’t see written anywhere else.
  • As you can see, the volume for Cummins India Limited has increased from 12,72,737 to 13,49,736.

Essentially, trading volume can legitimize a security’s price action, which can then aid an investor in their decision to either buy or sell that security. Forex traders can take advantage of the correlation between tick volume and actual trading volume to confirm price-action setups in the currency markets. Simply use the tick volume to confirm momentum trades, breakouts, continuations, and reversals, just like a stock trader would use the volume data in the stock market. Trading volume is a valuable component to explore and assess trends. The fundamentals can be taken into use to evaluate market strength or weakness and also to analyze if the trading volume is ascertaining a price move or not.

As you’ve seen in the examples above, indicators that are derived from using volume such as on-balance volume and volume by price can be used to create lucrative trading strategies. It’s often a smart idea to combine trading signals generated by changes in volume with a shift in a company’s fundamentals. Simple stock screens that identify securities with sharp changes in volume are great candidates for traders looking to create a watch list. As you can see from the chart of Microsoft Corporation (MSFT), the price trended sideways between $34.80 and $37.00 in late 2013 and early 2014.

Bonus Content – Bitcoin Volume Analysis

Study them and add them to your analysis tools to improve your trading. The OBV indicator, popularly known as on-balance volume, is a technical analysis indicator that relates volume flow to changes in a security’s price. It uses a cumulative total of positive and negative trading volume to predict the direction of price. The OBV is a volume-based momentum oscillator, so it is a leading indicator — it changes direction before the price.

Rising prices indicate a bullish momentum, and falling prices indicate bearish momentum. A price decrease indicates that market participants are selling the stock. Both events occurring together (decrease in price + increase in volumes) imply that smart money is selling stocks. Going by the assumption that smart money always makes smart choices, the expectation is bearish, and hence one should look at selling opportunity in the stock. In addition, volume indicators can help confirm price reversal market structures, such as head and shoulder, double top, and others. The way a volume indicator behaves when the right shoulder of a head and shoulder pattern is forming can tell a lot about the setup.

On the other hand, if the candle closes near the bottom of its price range on decreased CMF volume, it’s a signal that distribution is taking place. With the CMF volume indicator, we can measure the amount of money coming into the market and its impact on the actual price. One particular situation in which they can be helpful is when a market has been in a trend, up or down, for quite some time. You have doubts as to whether it will continue its current direction, or begin to fail at current price levels and reverse direction. Factors like volume are useful to confirm your market analysis, but should never form the foundational basis for that analysis. I’ve seen markets go through dramatic, extended price changes with barely a blip of change in either volume or open interest.

You can see the low volume during the attempted breakdown and how in the subsequent sessions, the price turned upwards with a surge in volume (arrows). Both indexes were developed in the 1930s by Paul Dysart but weren’t well-known until after his death in 1969 — when Norman Fosback shed light on them in his book, “Stock Market Logic”. Being a cumulative indicator, the current value is added to the previous value to get a running total.

These volume spikes can also be an opportunity for you as a trader to take a counter move position. You need to know what you are doing if you are going to trade volume spikes. The action is swift and you have to keep your stops tight, but if you time it right, you can capture some nice gains. As the stock moves in your favor, you should continuously monitor the volume activity to see if the move is in jeopardy of reversing. You would have known you were in a winner once you saw the volume pick up on the breakdown as illustrated in the chart and the price action began to break down with ease.

How to Interpret the OBV

This means that when buyers and sellers seek to find or establish fair value, that volume should be a leading indicator of this agreement. There are certain situations where observing changes in volume can be extremely useful for both traders and investors. In order for a security to trend, the rising prices in an uptrend or falling prices in a downtrend must attract new market participants to enter the market. Failure to do so will lead to the trend stalling and price action going sideways (chop) or reversing. The image below is a trading example of a one-minute chart, where each volume bar along the bottom shows how many shares were traded in each one minute period.

What is Range Trading?

At a market bottom, falling prices eventually force out large numbers of traders, resulting in volatility and increased volume. These are generally sharp moves in price combined with a sharp increase in volume, which signals the potential end of a trend. Participants who waited and are afraid of missing more of the move pile in at market tops, exhausting the number of buyers. Daxor Corporation DXR, is the global leader in blood volume measurement technology focused on blood volume testing innovation. Daxor has several ongoing trials in the areas of heart failure treatment with support from the NIH and is under contract developing analyzers to improve combat casualty care with the U.S. Daxor’s mission is to advance healthcare by enabling optimal fluid management with blood volume analysis.