Mastering Stock Trading Volume: 2 Analyses, 2 Scenarios, and 1 Practical Application

Introduction

In the vast ocean of stock trading, a common adage goes: "Beginners watch prices; experts watch volume." Why? Because volume is often considered the cause behind price movements—a deeper layer of market insight. But what exactly is this "volume," and how can you leverage it? Let’s dive in.

1・What Is Trading Volume?

Trading volume refers to the quantity of shares traded within a specific period.

Example:

• If you buy 3 vegetables at $20 today, today’s volume is 3.
• The next day, you sell 2 vegetables at $25. That day’s volume is 2.
• If you later buy 3 more, the total daily volume becomes 5 (2 + 3).

Key Notes:

• Volume only counts quantity, not transaction parties.
• It’s impossible to discern whether trades are from one frequent trader or multiple buyers/sellers.

👉 Discover advanced volume strategies

2・Trading Volume Periods

Volume periods align with candlestick charts:

• Daily chart: Volume per day.
• Weekly chart: Volume per week.

Adjust the timeframe to match your analysis needs.

3・Volume Colors Decoded

Colors indicate price momentum:

• Red: Today’s close > Yesterday’s close.
• Green: Today’s close < Yesterday’s close.
• Yellow: Today’s close = Yesterday’s close.

⚠️ Note: Volume colors differ from candlestick colors (which compare open/close prices).

4・Interpreting High vs. Low Volume

Liquidity Insights

• High volume = High liquidity (faster trades).

  • Example: Buying 50 shares of a stock with 2,000 average daily volume is easier (25% of daily activity).

• Low volume = Low liquidity (slower execution).

  • Example: Buying 50 shares of a stock with 20 average daily volume may take days.

Market Heat

• High volume suggests divergent opinions—active buyers/sellers signal potential trend continuation.
• Low volume may indicate indecision or weak trends.

👉 Learn to spot volume traps

5・Price-Volume Convergence & Divergence

Convergence (Same Direction)

• Price ↑ + Volume ↑: Strong bullish trend (usually).
• Price ↓ + Volume ↓: Strong bearish trend (usually).

Divergence (Opposite Directions)

• Price ↑ + Volume ↓: Possible weakening uptrend.
• Price ↓ + Volume ↑: Possible strengthening downtrend.

📌 Caution: These patterns aren’t foolproof—market manipulation and external factors can distort signals.

6・How to React to Price-Volume Signals

Uncertain? Use a phased approach:

1. Buy multiple smaller positions.
2. Sell partially if signals are mixed (e.g., sell 1 of 2 shares).
3. Monitor the trend before committing fully.

Advantage: Reduces FOMO (fear of missing out) and regret.

7・Key Takeaways

1. Volume = Quantity traded.
2. Colors reflect daily price changes.
3. Periods align with chart timeframes.
4. Judge volume by bar length (not raw numbers).
5. Low-priced stocks often have higher volume.
6. High volume = High liquidity + market activity.
7. Staggered selling mitigates risk.

FAQ

Q1: Can volume predict exact price movements?
A: No—volume is one tool among many. Combine it with other indicators (e.g., RSI, MACD).

Q2: Why might a stock’s volume suddenly spike?
A: News events, earnings reports, or institutional trading can trigger spikes.

Q3: Is low-volume trading riskier?
A: Yes—low liquidity can lead to slippage (unexpected price gaps).

Q4: How do I practice volume analysis?
A: Use free charting tools (e.g., TradingView) to backtest strategies.

👉 Ready to level up? Start here

Final Tip: Volume is a guide, not a crystal ball. Pair it with fundamental analysis and risk management for best results. Happy trading!