VOLUMES

This is one of the popular indicator not for entry/exit level but as a confirmation tool which indicates about trends and patterns. Volume provides data related to number of stocks bought or sold for any given period of time. On its own, it does not help trader in anyway but when combined with other indicator it will give good results. 

This technical analysis tool has four possibilities :

1. When price increases and volume also increases, then it confirms the bullish trend.

2. When price increases and volume decreases, then it shows that buyers strength is weak.

3. When price decreases and volume increases, then it confirms the bearish trend.

4. When price decreases and volume decreases, then it indicates weak sellers strength.


1. Price increases and volume increases :


In the above chart, we can observe the following:

1. Big bullish candle formed i.e. price increases and volume also increases and that can be considered as indicator confirming bullish trend.

2. If the volume is increasing along with price, then it means, big players are responsible for it and are influencing the prices and it is more likely the trend will continue. Therefore we should follow those big players and get benefitted by it.


2. Price increases and volume decreases


Following observations can be made in the above chart:

1. We can witness above a good healthy green candle which anyone could assume that it may result in bullish trend but volume is less.

2. It means, price increased because small retail investors influenced it and not big players and this is the indication that it is not a strong bullish candle and that should alert us.



3. Price decreases and volume increases





Following observations can be made in the above chart:

1. Big red candle can be witnessed and also good volume and that can be considered as a confirmation tool for potential bearish trend.

2. There is huge volume because big players play role in it and not small retailers and that is why it is reliable.


4. Price decreases and volume decreases





Following observations can be made in the above chart:

1. We can witness a good bearish candle but the volume is less so we need should assume there will be bearish trend.

2. Big players have not influenced the price and hence it is not reliable.



To Summarize:

1. Volume tool can be used to confirm trend.

2. If price increase is influenced by big players then volume will be huge and it is reliable and it confirms a particular trend.

3.  If the volume is less then it is because of small retail investors and is not reliable. Hence, we should not trade on low volume days.