Volume Analysis-Using Volume to trade profitably.

What is volume? In simple terms, its the number of shares, units or contracts traded during a specific period of time. When we say shares, units or contracts, we take into account different instruments. Stock, futures, etc.

Volume analysis is using the volume in combination with technical analysis to find possible trade opportunities in the market you’re trading.

Volume can be split into virtually any time period you can think of. From daily to hourly, even based on market reversal. The volume for any given period of time can be seen directly under the chart you’re analyzing.

Price follows volume movement. In some cases, such as penny stocks, a massive rise in the stock could mean nothing. If there is little volume accompanying that move. There could be a reversal in the future. We will discuss differences in volume increases and decreases.

Volume Analysis-basics

Volume should be seen as a strength in momentum and the current market trend.

The basics of volume analysis are:

  • Rising or falling asset price accompanied by increasing volume. No matter the direction. Is to be considered trend strength. Price rising or falling on strong volume is real and will likely continue.
  • Rising or falling asset price accompanied by decreasing volume. No matter the direction. Is to be considered trend weakness. Price rising or falling on strong volume is real and will likely not continue.

Below are two instances of these occurrences:

The first is an example of Apple stock. There is a section fragmented in the image below. This is an example of the price of Apple falling while volume was increasing. The trend lower continued. Until a bullish volume came in. Follow by a spike on earnings, we will talk about this a little later on.


The second example is Intel stock. In recent price action, there is a bullish story in this stock. But volume is dropping. This could be a sign of a potential reversal coming about. Since this is a live, and recent example, we will see if volume truly led this move lower!

Intel price increasing on decreasing volume.


Volume Analysis-Spikes

Increasing volume doesn’t necessarily mean the increase of a trends momentum. What? Isn’t that contradictory to what we’re just been talking about? Well kind of. We have to take into account the overall story of the market in all scenarios.

Huge volume spikes can mean a few things. The trend is exhausted and that large volume press was the last of buyers or sellers left in that trend. Alternatively huge spikes in volume can come from earnings events.

The exhaustion of the trend can be classified in two ways:

  • A spike in volume as price decreases can mean that the sellers are exhausted. Meaning this is the last press lower before the trend reverses. This spike usually means the last of the sellers got out of the market, leaving only buyers in the market. Sparking the start of a bullish move.
  • A spike in volume as price increases can mean that the buyers are exhausted. Meaning this is the last press higher before the trend reverses. This spike usually means the last of the buyers got out of the market, leaving only sellers in the market. Sparking the start of a bearish move.

An earnings spike in volume is less reliable than the above. Earnings spikes can go one of two ways, and its near impossible to tell if the trend will follow volume or go against it. Traders should be advised to wait until the trend forms from an earnings move before diving in.

Apple example using volume spikes.

Volume Analysis-Trading


Futures trading requires a lot of volume analysis and order flow analysis. This is the foundation of TRADEPRO Academy’s futures education. This helps traders look for the right side of the trend in the futures markets and helps identify high probability trades.

When looking at Futures just like if you were to analyze stocks, the volume on the move is very important. If a move on a tick chart or time chart is accompanied by large volume, that trade will most likely prevail.

Below is a chart of Crude Oil futures, denominated in different boxes. Box 1 Outlines a bearish move in which volume rose, in this area looking for a rally to sell would have resulted in a profitable trade. While Box 2 outlines consolidation where volume is weak, this is an undesirable location for traders to look for trades. Box 3, like Box 1 is a large short zone. In which volume increased to the downside.

Another tip to have in mind is order flow. When trading Futures its important to know where bids or offers are stacking up. This feature can be seen on platforms such as Sierra Charts. Below is a screenshot of Crude Oil futures again on a Footprint chart. The yellow boxes outline the heavy bids and offers that have been picked up by the heat map. The offers are a faint red while the bids are a faint blue. These volume areas act as support or resistance levels depending on where price is.


Volume trading stocks and options is no different from the above mentioned.

It’s more desirable to look for the direction of the trend first, and see if the volume on this move in increasing or decreasing before you look for an entry. A trader should use other qualifiers as well, for example previous support and resistance levels.

The chart below is a prime example of using levels in conjunction with volume to find higher probability trend trades. The chart shown is a 1 hour on the XRT ETF, an optionable asset. This can be done with stocks as well.

The green horizontal bars represent support/resistance levels. While the vertical gray lines represent a section of chart we’re analyzing in relation to the levels and volume.

The basis of this analysis is we are waiting for a bearish intraday trend to form on and increase of volume. To the left of the red circle, there was a test of support that could not crack on weak volume.

The red circle represents the beginning of a bearish trend and as the support gets tested, large red volume builds up, and the crack happens on and increase of volume. This is a signal of the continuation of the trend.

Final thoughts

Volume analysis is a tool all traders should have in their arsenal. Volume leads price and can qualify a trends continuation or is showing signs of reversal. Futures trading is very volume based, and order flow analysis can make the difference between a break even trading and a highly successful trader. Short term trading stocks and options are also very depended on volume movement.

With the two volume tips we presented above, traders should have a good understanding of volume analysis and volume trading. For the continuation of a trend, traders should look for increasing volume to either way of the trend. A sharp spike in volume doesn’t necessarily mean the continuation of a trend and could actually mean the reversal of a trend.

Applying these little tips and tricks to you analysis can improve the way traders read the markets trend.


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The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.