Price tells you what happened. Volume tells you how much conviction was behind it. A price move on high volume is meaningful. A price move on low volume is suspicious. This is the indicator most beginners ignore and most professionals swear by.
What Volume Tells You
Volume is simply the number of shares, contracts, or units traded during a time period. High volume means lots of participation. Low volume means few people are trading.
Key Concept
Volume confirms price action. Think of volume as the "weight" behind a move. A price breakout on massive volume is like a heavyweight punch — it is going to have follow-through. A breakout on thin volume is like a weak jab — it might not hold.
The Four Volume Rules
1. High Volume + Price Move = Strong
When price makes a big move and volume is significantly above average, the move is backed by conviction. It is likely to continue. This is the ideal scenario for entering a trade.
2. Low Volume + Price Move = Weak
When price moves but volume is below average, be skeptical. The move lacks participation and is more likely to reverse. This is where many false breakouts occur.
3. Volume on Breakouts Must Be Above Average
When price breaks through support or resistance, you want to see volume spike well above the 20-period average. This confirms that the breakout is real and not a trap.
4. Declining Volume in a Trend = Exhaustion
If an uptrend continues but volume decreases with each push higher, the trend is running out of steam. Fewer and fewer buyers are participating. This often precedes a reversal.
Example
A FTSE 100 stock has been ranging between £5.00 and £5.50 for weeks. One day, it closes above £5.50 on three times the average volume. This is a legitimate breakout — institutional money is driving the move. Compare this to the stock poking above £5.50 briefly on normal volume — that is probably a false breakout that will fail.
Volume Profile Basics
Volume profile shows volume traded at each price level rather than at each time period. It reveals where the most trading activity has occurred — these are areas of strong support and resistance because many traders have positions at those prices.
The Point of Control (POC) is the price level with the highest volume. Price is often attracted to this level like a magnet. Low volume nodes are prices where little trading occurred — price tends to move through these quickly.
Warning
Volume data is less reliable in forex and crypto compared to stocks. Forex is decentralised (OTC), so no single source has complete volume data — what you see is often just your broker's volume. Crypto volume can be inflated by wash trading on unregulated exchanges. Stock market volume is the gold standard because it comes from centralised exchanges.
Risk Disclaimer: Trading financial markets involves significant risk of loss. The content on this page is for educational purposes only and does not constitute financial advice. Past performance is not indicative of future results. You should not trade with money you cannot afford to lose. 70-80% of retail investor accounts lose money when trading CFDs and spread bets. Consider whether you understand how these products work and whether you can afford the high risk of losing your money.