Here's a detailed video from Upstox that explains the volume indicator and how to use it in trading. You'll learn about the working of the volume indicator, volume indicator strategy, how to apply the volume indicator, and volume indicator analysis.
In the chart you should see volume depicted by the red and green bars at the bottom, the volume moving average is depicted by the black line dragging across. Now logic says that the biggest green bar should be good volume, but reality doesn’t work like this. A good high volume should break the black line. Any that crosses the black line is good, as it means volume breakout.
Let’s look at these four cases:
1. When volume is increasing and price is also increasing.
The market is bullish, and becoming more bullish, the price is rising and buyers are ready to buy at higher prices. The bars indicate that the overall participation in the stock is high, both buyers and sellers are increasing. Volume alone means nothing, along with increase in price it depicts a strong bullish market.
2. Price is increasing, but volume is falling.
This means the participants are very low, but the price is still opening. Hence, the public is not interested in the high market, because they are fearful of a fall. This is a weak bullish market. It is an early sign of reversal. So, you have to be cautious.
3. Price is falling, but volume is increasing.
This means participation in the stock is great, the volume is breaking through the black line. More people are buying and selling this stock, even though the price is falling. This means the public is very interested. This is a strong bearish market. Short selling is happening a lot. This means the chances of it falling further are higher.
4. Price and volume, both are falling.
Here you will notice that the volume bars are quite small, and quite a few of them end below the black line. This means the participation in the market is very low, among both sellers or buyers. The price of the stock is also falling. This is a weak bearish market. This is an early sign that may change the market into bullish reversal, but we cannot predict with surety. So you must be cautious and wait for the uptrend.
Should one look at volume indicators on a daily, weekly, monthly basis or how often? Well, if you are going to trade on a daily basis, look at it every 5 - 10 minutes. If weekly, then look at it hourly. If you are going to trade in a month, look daily. The time frame depends on how long you want to participate in the trend. Volume is an incomplete indicator if you do not look at the correlation with price.
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