Trading Volume

Trading volume measures the number of shares traded during a specific time period.

Trading volume is another important information that technical analysts use to confirm a trend or identify a reversal. It measures the number of shares traded during a specific time period and is included at the bottom of many charts.

Trading volume in price uptrends

A price uptrend accompanied by an increase in trading volume is a bullish signal. It implies that more investors are buying the stock at a higher price, giving momentum for the uptrend to continue.

A price uptrend accompanied by a decrease in trading volume, however, implies that the uptrend may not be able to hold over the long run. Fewer and fewer people are willing to buy the stock as the price gets higher.

Trading volume in price downtrends

When the price is falling and the trading volume increases, it implies that there are more sellers than buyers in the market. The price could drop further due to the selling activities.

When the price is falling and the trading volume decreases, it implies that the market is not panic selling. Investors are still confident in the stock and waiting for a reversal in trends. This may prevent the stock price from dropping further.

*Finally, please note that technical analysis is not 100% accurate. The interpretation of results is generally subjective.

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Lesson List
1
What is Technical Analysis?
2
Basic Chart Types in Technical Analysis
3
Reading Candlestick Charts
4
Trend Analysis
5
Support and Resistance
Trading Volume