What are Supports and Resistances?
17 August, 2021
Basic Trading Notions
17 August, 2021

What is Volume?

Volume is the number of contracts that are executed in a given period of time. The more volume there is in an instrument, the more active it will be considered. In order to measure the volume, many technical analysts observe the volume bars. which can be seen at the bottom in many charts (also through the volume indicators).

The volume bars indicate how many trades have been executed in that period and usually show a trend as does the price.

Why is volume important?

Volume is an important part of technical analysis as some traders use it to confirm trends and chart patterns. For example, a high volume of trade can serve to confirm strong movements up or down in the price of an asset.

When this relationship begins to deteriorate and we see a trend but with low trading volume, it is possible that the trend is weakening. For example, if we have a downtrend and we see very low volume levels it is a possible sign that the trend is losing its strength.

When the volume is not aligned to the trend a divergence usually occurs, which consists of a contradiction between 2 different indicators. A known divergence is one that occurs when we have an uptrend and decreasing volume.

Volume and chartic Patterns

Volume is also often used to confirm chartic patterns like shoulder head shoulder, triangles, flags and so on.

The patterns usually indicate continuation or change of trend and usually have a trigger at the end of their formation, if this movement is not accompanied by a significant volume it is likely that the figure does not have much relevance or strength.

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