Volume

It represents the number of units, shares, or contracts exchanged between buyers and sellers.
The more actively an asset is traded, the higher its volume, and vice versa.

Volume is a critical indicator of market activity and liquidity, often displayed alongside price data.
Every transaction in the market requires a buyer and a seller, and each transaction contributes to the trading volume.

However, trading volume reflects the number of assets traded, not the number of transactions. For instance, if 100 buyers each purchase one share, it counts the same as one buyer purchasing 100 shares.

An "active" market indicates higher trading volume, while an "inactive" market suggests lower volume.

Volume tends to increase during periods of significant price fluctuations.

It can be used to measure various financial instruments, including stocks, bonds, options, futures, commodities, and Forex. However, it is most commonly applied in stock trading, where it tracks the number of shares traded.

Volume adds an extra dimension to price analysis, making it a popular tool in .

It helps gauge the strength of price movements.

A price move accompanied by a proportional increase in volume is considered more meaningful than one with low volume.

Each market or exchange tracks its own volume and provides this data to traders. While these reports often come in real-time, they are usually estimates, with accurate figures available at the end of the trading day.

Traders can also estimate market volume through alternative methods, such as tick volume or tracking the number of price changes.

Rapid price changes can indicate high trading volume.

The Importance of Volume in Technical Analysis:
Volume plays a crucial role in technical analysis by confirming trends and chart patterns.
When the price of an asset rises or falls with high volume, the movement is seen as stronger and more significant.
Conversely, if price changes occur with low volume, the move is considered weaker.
This is why analyzing both price and volume is essential to validate trend reversals, trend continuations, and chart patterns.

Volume analysis helps traders determine the likelihood of certain market scenarios, such as a true trend reversal.

For example, if Bitcoin rises by 20% in one day after a prolonged downtrend, and the volume is high relative to the average daily volume, it may signal a trend reversal.

On the other hand, if the volume is below average, it may not be enough to confirm a genuine trend reversal.

Volume Precedes Price:
A core principle in technical analysis is that volume often precedes price movements.
Traders closely monitor volume to predict upcoming trend reversals.
For instance, if volume starts to decline during an uptrend, it may signal that the upward price movement is nearing its end.

Volume Should Confirm the Trend:
In a healthy upward trend, volume should increase along with rising prices. Similarly, in a downward trend, volume should also increase.

If the relationship between volume and price movements weakens, it could indicate a weakening trend.
For example, if an uptrend is marked by declining volume on up trading days, it may suggest that the trend is losing momentum and could soon reverse.

Volume Should Confirm Chart Patterns:
Chart patterns like Head and Shoulders, Triangles, Flags, and others should be confirmed by volume.
For instance, during an upside breakout in an Ascending Triangle, increased volume should confirm the move.
If the volume doesn't confirm the breakout, the quality of the chart pattern signal is weakened.