How to Interpret Trading Volume

For those of us daytraders, intraday volume analysis is an important part of our job. When you trade from the comfort of your home, you lack the ability to see the market in live-action, compared to people trading on the floor. To compensate for that, you need the ability to read chart patterns. Trading volume is an integral part of it.

Trading Volume Analysis

The more volume associated with price action, the surer the move. For example, for breakout trades, we all know from statistics that 80% of all breakouts fail. If you are a breakout trader, how do you know when to enter a trade and when to stay on the sideline? By looking at the volume. If the breakout bar is accompanied by a surge in volume, we know that there are a lot of traders who participate in this breakout trade and the price probably will continue. On the other hand, if the breakout bar shows no significant change in volume, you’d better sit on your hands.

Climatic Volume Bar

For breakout and breakdown trades, you may need high volume bars signifying a change in trend. However, when an abnormally high volume bar appears during a strong rally or selloff, it may signify an end to the current trend. Why? Because the high volume bar signifies that there’s a huge amount of stocks changing hands during that period, meaning there’s no one left who hasn’t participated in the trend. When there’s no more buyer, the price has to come down, and vice versa.


Understanding trading volume and knowing how to read intraday volume will help you succeed as a trader.