What Is Volume in Trading?
Volume is how many shares or contracts actually changed hands during a period, drawn as a bar under each candle. It is the only common chart input that is not calculated from price, so it tells you how much trading was behind a move rather than how big the move was.
Volume is on every chart by default and it is the part most people never look at. It is also the only common input that is not calculated from price, which is exactly what makes it worth the glance.
How it works
Volume is how many shares or contracts changed hands during the period. One bar per candle, drawn underneath.
That distinction is the whole idea. A candle’s height tells you how far price traveled. The bar underneath tells you how much business it took to travel that far. A large move on almost no trading and the same move on heavy trading are different events with identical candles.
Every other common tool — moving averages, relative strength index (RSI), Bollinger Bands — is arithmetic performed on price. Volume is a separate measurement. It is the only genuinely new information most charts carry.
Two identical breakouts
Picture two breakouts whose candles are identical. The level is the same, the close is the same, the break is the same. Only the bar underneath differs.
The first says a lot of people transacted at that price. The second says the level was crossed because nobody was defending it that minute, which is a much weaker thing to have happened.
This is the single most useful application of volume, and it takes one glance.
Heavy is relative
There is no volume number that means anything on its own. A million shares is enormous on one instrument and background noise on another; the same instrument trades differently at the open than at lunchtime.
The only reading that works is a comparison to the recent bars on the same chart — a bar can be 3.8 times the typical bar around it, and “3.8 times the ones next to it” is the statement, not “3.8 million.”
A quiet pullback is a good sign
This one is counter-intuitive and worth getting right.
A move up on heavy volume, then a pullback where the bars shrink, means the people who bought are not rushing to sell. Nothing is happening on the way down because there is little supply.
Compare that with a pullback on heavy volume, which means plenty of people are getting out. Same shape on price, opposite meaning underneath.
At a level
Heavy volume at a level says the level was contested rather than drifted through. A lot of orders were sitting there and they got filled.
That matters afterwards. A level that consumed a great deal of trading has less left behind it than one price floated past.
A worked example
Read the breakout chart forward, one bar at a time.
The base. Price is flat and the volume bars are small and even. Nothing is happening, and the even bars are how you know it — no one bar stands out.
The break. Price closes above the base on a bar about four times the typical one. That is the reading: not “volume is high,” but “this bar is four times its neighbors.”
The pullback. Price comes back toward the level and the bars shrink to well below normal. Few people are selling into the retrace.
Loud on the move, quiet on the pullback. That contrast is what volume is actually for, and it is a comparison rather than a number.
What it still does not give you is an entry price or a stop. The level does that. Volume only tells you how seriously to take it.
The original data
Across our study of 24,971 trading videos, 535 have volume in the title. The median one gets 20,251 views, 64% never pass 50,000, and the median length is 10.8 minutes.
The corpus carries description text for 180 of those 535, and across those 180, 5 mention invalidation, failure, or what a bad read looks like.
Five in 180 on an indicator whose main practical use is deciding whether to believe another signal is a strange gap, because volume being wrong is exactly how it costs you something.
How this connects
Several indicators turn it into a line. On balance volume adds each bar’s volume on up closes and subtracts it on down closes, and accumulation distribution weights it by where the close sits in the bar.
VWAP uses it as a weight to give the session’s average traded price, while a volume profile sorts it by price instead of by time.
A false breakout often comes on the thin version. The break on a small bar described above is the classic setup for price slipping back inside.
The climax bar has its own name: exhaustion. Wyckoff built a whole method around reading bars like it in context rather than in isolation.
It is lopsided through the day. The market open and power hour see the heaviest trading, which is why the comparison has to stay local.
And futures have a second count. Open interest shows how many contracts remain open, which separates new positions from ones being closed.
When it fails
Heavy volume, and the move fails anyway
This is the failure, and it follows directly from what volume is. A huge bar means a lot of trading, and a lot of trading means a lot of buying and a lot of selling — because every share bought was sold by someone.
A tall bar tells you the move mattered to a lot of people. It does not tell you which side of it won. Reading a big bar as bullish is reading half a fact.
Climax volume looks like confirmation
The largest bar in a run often arrives at the end of it — the point where everyone who was going to act has acted. It looks like maximum enthusiasm and it can be the last of it.
There is no way to tell that bar from a genuine breakout bar at the time. Both are just tall.
You are comparing across charts or across sessions
A bar that is enormous at 9:30 is ordinary at 11:00, and a bar that is huge on one instrument is nothing on another. The comparison has to be local — this chart, these neighboring bars.
You found it afterwards
Every important volume bar is obvious once you know what followed it. At the moment it prints, a tall bar is a tall bar.
Related
Candlesticks is the page above this one — the bar only means something once you can read the candle it sits under.
Support and resistance is where volume earns its keep, because a level that consumed heavy trading behaves differently from one price drifted through.
And market structure is what turns “this bar was big” into a decision, by supplying the price at which the read is over.
The volume panel sits under every chart by default and most people never look at it. What I use it for is weighing one candle against its neighbors. A big candle on a bar like all the others is one thing; the same candle on a bar three or four times the usual is a different event, and that comparison takes a second and costs nothing.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.