Volume is the number of securities traded. It measures the conviction behind a move, and it is one of the few indicators that is not derived from price itself.
The central rule
A price move on high volume is credible: many participants are taking part. The same move on low volume is suspect: it may be nothing more than a technical drift without conviction, ready to reverse.
- Rise + high volume = a healthy trend, broad participation.
- Rise + low volume = caution, little conviction.
- A break of resistance + high volume = a quality signal.
- A break on low volume = often a false signal (a trap).
Capitulation volume
During a crash, an extreme volume spike alongside a brutal fall often signals capitulation: the last panicked sellers are getting out. Historically, such moments frequently mark important lows.
The trap of illiquid stocks
On a small cap, a handful of orders is enough to create a “spectacular” volume that means nothing. Volume is only read in relative terms: against the stock's own average.
À retenir
- ✓Volume measures the conviction behind a price move.
- ✓A break without volume is often a false signal.
- ✓Always read volume relative to the stock's own history.