Stock Volume is an important indicator that is often found on the charts by default. Surprisingly, many traders ignore or do not pay much attention to it, which is usually mistake and reason why they fail in the stock market.

Stock volume measures an amount of shares that were traded during a specific period of time. It shows how many people are engaged in buying/selling the stock. If the bar indicator is shorter, there are few traders behind the share price move; if the bar is higher, there are rather more traders behind the share price move. Volume detects health of the stock’s direction, on the principles, stock volume comes before the price. Thus, for instance if significantly increased volume comes after long decrease in price, it could actually indicate an end of bear market for the stock and an incoming rise.

The stock volume can be a great indicator to see institutional investors’ involvement into the stock market. Money managers and other institutional traders have got incredible resources in contrast with the public masses, thus they represent a buying/selling force of the particular stock price movement. This is visible on the chart when volume bar is significantly increased while price is attacking its resistance or support levels.

Once you know what the price and volume of the stock are, you can elaborate its behavior and use it for your trend analysis.

The basic volume principles are defined in below four scenarios:







Volume strongly supports the price increase




Volume strongly supports the price decrease




Volume little supports the price increase




Volume little supports the price decrease


As a good example for above illustration is Netflix, where we’re using a candlestick chart and where the volume is displayed in vertical bars.

Netflix, Inc; Source: Google

Netflix, Inc. - Stock Volume

On the first scenario we can see an increased volume of trading from June till middle of July 2015, which then followed by significant price soaring. During July and beginning of August the stock was peaking and we can clearly see that volume strongly supported the price rise. In the second half of August volume was pretty increased in contrast with price which was heavily dropping, volume strongly supported price, which dropped during September to its initial highs from June. In the third scenario price was decently rising, while volume was declining – volume supported weakly the price and stock experienced a little rally in the beginning of December. Since the support was not strong enough the price was declining until the end of the year. During the fourth scenario both price and volume were dropping, the support was little however enough for the price to be confirmed and was continuing in decline in January 2016. However, trend changed in February and price started to rally.

These basic scenarios are fundamental models for every healthy trading and every experienced investor displays them via his memory when looking at the stock chart.

Stock Volume behavior is closely watched also in short and medium run before a stock market participant enters a deal. Volume may help an investor to indicate a new trend, a continuous trend or the end of a trend. This is what real investors do, they trade via trend and volume helps them to find or ensure them about the trend. There are plenty volume conventions that might indicate something so we are going to pay an attention to those that are related to the trending patterns.


Beginning of new trend example

Kaz Minerals Plc; Source: Google

KAZ Minerals PLC - Stock Volume


The above chart shows a stock price with volume of Kaz Minerals. The company was in a basing mode (Green frame – Level 1 of Stock Market Cycle) between November 2015 and January 2016. At the end of January price significantly increased as well as volume. After a pullback, in the beginning of February, price increased decently with still increased volume although not that big as first time. It is important here for price not to go lower than 100, which is its support level and volume to be increased even little bit. Afterwards, it didn’t take too long for the price to start soaring and creating a new bull market. Thus, such pattern of volume and price may trigger a bull notification. As the stock was going up, the volume was also modestly increased, what suggests scenario 1. Successful trader enters a long position on February 5 or February 12 and drives the share up.

There are more patterns like this that exist in the market and we will illustrate them later in a different article.

High volume and little or unchanged price may indicate volatility, since many traders keep offsetting each other which later results in sharp price movement. This is an important fact that needs to be taken into account. Despite that volume is a crucial tool in trend analyses.