Volume Analysis – Technical Indicator

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Volume Analysis Definition

Volume analysis is the technical analysis technique of assessing the health of a trend, based on volume activity. Volume analysis is one of the oldest trading indicators in the market.

Breakouts and Volume

Traders will often look for breaks of support and resistance to enter positions. There are two key components to confirm a breakout: (1) price and (2) volume. When stocks break critical levels without volume, you should consider the breakout to be suspect.

Volume Breakout

Price Trends and Volume

When a stock is moving higher in a stair-step approach, you will want to see volume increase on each successive high and decrease on each pullback. The underlying message is that there is more positive volume as the stock is moving higher, thus confirming the health of the trend.

Trend Volume

Volume Spikes

Volume spikes are often the result of news driven events. It occurs when there is an increase of 500% or more in volume over the recent volume average. This volume spike will often lead to sharp reversals, since the moves are unsustainable due to the imbalance of supply and demand. Trading counter to volume spikes can be very profitable, but it requires enormous skill and mastery of volume analysis.

Volume Spike

Alton Hill

Alton Hill

I am a co-founder of and an IT professional that specializes in large scale Systems Integration projects. I have actively traded the markets since 2000 and believe that true trading mastery comes from practice. When I'm not working on a new trading strategy, I enjoy spending time with my wife and kids.
Alton Hill
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