Understand how trading volume works, why it matters, and how to use volume indicators and analysis to make informed trading decisions.
Volume is a critical yet often underutilised technical indicator in stock market trading. It provides insight into the strength or weakness of a price move and helps traders make informed decisions. This guide covers how volume works, its importance, and the types of volume indicators used by traders.
Trading volume refers to the total number of shares or contracts traded in a security during a given period. It is a direct measure of market activity and liquidity. For example, if 1 Million shares of a stock are bought and sold in a day, the trading volume is 1 Million.
Volume data is readily available on:
Stock exchange websites like NSE/BSE
Brokerage platforms like Zerodha, Groww, Upstox
Financial news websites and trading apps
Technical analysis tools (e.g., TradingView, MetaTrader)
Most platforms display volume as vertical bars at the bottom of a price chart.
Volume confirms price movements and trends. Key observations:
High volume with price rise = strong buying interest
High volume with price fall = strong selling pressure
Low volume with price rise/fall = weak or unsustainable move
Traders often wait for a price breakout to be accompanied by high volume for confirmation.
Volume plays an important role in evaluating:
Trend strength: A trend backed by strong volume is more reliable.
Reversals: Sudden volume spikes may indicate trend exhaustion or reversal.
Breakouts: Volume validates whether a breakout is genuine or a false signal.
Buying volume: Indicates bullish sentiment.
Selling volume: Indicates bearish sentiment.
Average volume: Used to compare current volume against historical activity.
Net volume: Difference between buying and selling volume.
Here are common volume-based indicators:
The On-Balance Volume indicator uses cumulative volume to forecast potential price movements. It adds volume on up days and subtracts on down days to indicate the momentum behind a price trend.
This indicator smooths out volume data over a selected period, helping traders identify consistent volume trends and filter out random spikes.
The Chaikin Money Flow combines price and volume to assess the strength of buying or selling pressure. A positive CMF suggests accumulation, while a negative value points to distribution.
This line aids in assessing if a stock is being accumulated (bought) or distributed (sold) by factoring in both price movements and volume.
The Volume Oscillator calculates the difference between two volume moving averages. It measures the strength of volume by indicating when current volume trends deviate significantly from recent averages.
Volume is a foundational tool in technical analysis that adds depth to price action insights. By understanding how volume behaves during uptrends, downtrends, and breakouts, you can make more informed trading decisions. Whether using simple volume bars or advanced indicators like OBV or CMF, incorporating volume analysis helps validate trends, spot reversals, and assess market strength—making it an essential part of any trader’s toolkit.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
There’s no fixed number, but higher volume relative to the stock’s average generally indicates strong interest and better liquidity.
One volume unit represents one share or contract traded, either bought or sold. For example, 1,000 in volume means 1,000 shares were traded in total.
Look for price direction with volume:
Rising prices with high volume = buying
Falling prices with high volume = selling
Also, candlestick patterns and volume indicators like OBV can help determine sentiment.
Yes, high volume generally implies high liquidity and strong interest. But if it’s paired with a price drop, it could signal panic selling.