Thread by @ICICI_Direct

Price & Volume are considered king of chart analysis 👑

Why? Because all indicators get constructed by combining them

Let understand:
🔸What is volume
🔸How it confirms trends
🔸Relation to liquidity
🔸Relation with breakouts

A thread🧵👇#TechnicalTuesday #LearnWithICICIDirect

[1] What is Volume?

Volume refers to the number of shares or contracts traded in a given period of time.

Ex: A stock had 5 trades in a day

1. 10sh @₹500/sh🔼
2. 5sh @₹490/sh🔽
3. 20sh @₹550/sh🔼
4. 15sh @₹500/sh🔽
5. 30sh @₹510/sh🔼

Total volume for the day - 80 shares

[2] Trend Confirmation

👉An increase in trading vol. can often be associated with an increase in buying/selling pressure

👉This, in turn, leads to a corresponding increase in the price of a stock

👉If a comp. reports expected < earnings, it may attract a higher trading volume

[3] Example of Trend Confirmation

Look at the daily price and vol. movements of a particular stock over a period of 9 days in the image below

Contd.👇

👉An increase in trading vol. can be associated with an increase in buying or selling pressure

👉Which can lead to a corresponding increase in price of a stock

👉It's important to note, however, that there is no guaranteed relationship between trading volume and stock price

[4] Liquidity Indicator

👉Volume is a crucial indicator of liquidity in any market, including stock market

👉When mkt has high trading volume, it generally indicates a high level of liquidity & better price discovery

👉Whereas, a market with low trading volume may be illiquid

[5] Breakout Indicator

Vol. is a critical indicator for traders looking to identify potential breakouts in the stock market

🔸Helps to confirm the strength and validity of the breakout

🔸Helps identify potential false breakouts

🔸Helps traders identify probable breakouts

[6] Volume Spikes and Breakout

Vol. spikes and breakouts are related concepts in technical analysis

Vol. spikes can occur for a variety of reasons, such as:

👉News events
👉Earnings releases
👉Changes in market sentiment

Vol. spikes help readers identify breakouts & reversals

[7] Example of Vol. Spikes

A number of volume spikes appear in the below chart

1 Occurs at the start of the symmetrical

2 Occurs on a breakaway gap from the earlier symmetrical formation

3 Into a consolidation that forms a descending wedge

4 Signals Trend Reversal

👇

The 4th vol. peak is interesting

👉Occurs after the breakout there was low volume

👉Thomas Bulkowski’s who is widely known for his research and analysis of chart patterns and technical trading strategies observed this👇

👉Volume does not necessarily occur on a breakout

[8] Key Takeaways

Some general rules that date back to the work of H. M. Gartley in 1935

🔸When prices are rising:
👉Vol. increasing is impressive
👉Vol. decreasing is questionable

🔸When prices are declining:
👉Vol. increasing is impressive
👉Vol. decreasing is questionable

🔸 When a price advance halts with high vol., it is potentially a top.

🔸When a price decline halts with high vol., it is potentially a bottom

Higher volume is usually necessary in advance because it demonstrates active and aggressive interest in owning the stock

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Check our detailed article on "Importance of Volume"-

icicidirect.com/research/equit…

TL;DR

[1] What is Volume?
[2] Trend Confirmation
[3] Example of Trend Confirmation
[4] Liquidity Indicator
[5] Breakout Indicator
[6] Volume Spikes and Breakout
[7] Example of Vol. Spikes
[8] Key Takeaways

Disclaimer: Investments in securities markets are subject to market risks. Please read all related documents carefully.

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