Volume: the fuel of a move
Lesson 8 of 23 in the course “Technical Analysis”. Free, with animations and a quiz.
How many people are in
Volume is how many coins or shares changed hands during a candle. In TradingView it’s the bars under the chart. Price shows where it went, volume shows how many people are behind it. Dow already wrote that volume should confirm the trend: in a healthy rise volume grows on green candles and drops on pullbacks.
A breakout without volume is empty
A real breakout usually comes on volume well above average: lots of people agreed the price is different now. A breakout on quiet volume often turns out to be a trap, and price comes back. It’s the most useful volume check in practice: before buying a breakout, glance at the bar under the candle.
The climax
Sometimes at the end of a long fall a candle shows up with record volume and a long lower wick. That’s a selling climax: everyone afraid sold at once, and big buyers took it all. Richard Wyckoff called it SC. If price later tests that low on quiet volume, sellers have run out.
A rise running out of breath
Price makes new highs while volume shrinks each time. So there are fewer buyers and the rise rests on the last ones. It’s not a sell signal yet, but a reason to tighten the stop and not open new buys at the highs. Now in the trainer you’ll find which breakout volume confirmed and which it didn’t.
Check yourself
- Price broke a level, but volume on the breakout candle is below average. What should you think?
Correct answer: The breakout is doubtful: few participants, maybe a trap. Volume shows how many people agreed with the new price. A quiet breakout is easy to undo, so it’s better to wait for a retest or confirmation. - After a long fall: a candle with record volume and a long lower wick. What did Wyckoff call it?
Correct answer: A selling climax (SC). An SC is when panic pours out at once and big buyers absorb the selling. It’s often the start of a bottom, confirmed by a quiet retest. - Three new highs in a row, each on less volume. What’s sensible?
Correct answer: Tighten the stop and not buy at the highs. Falling volume on new highs is a sign of fatigue, not a reversal. It’s sensible to protect profit and wait for a structure break.