Volume bars are an essential indicator for stock day traders as they represent the number of shares traded during a specific time frame. Here's what volume bars and changes in buy volume indicate:
Volume Bars
High Volume: Indicates strong interest in the stock. It often occurs during significant price movements, such as breakouts or news releases. High volume confirms the strength of a trend.
Low Volume: Suggests a lack of interest or uncertainty about the stock. Price movements on low volume are often considered weak or less reliable.
Buy Volume (Green Bars)
Buy volume refers to trades executed at the "ask" price (indicating buyers were willing to pay the sellers' asking price). Here's how changes in buy volume can be interpreted:
Increasing Buy Volume:
Bullish Signal: Indicates growing buying interest and demand for the stock. If this accompanies a rising price, it suggests strong upward momentum.
Trend Confirmation: High buy volume during a breakout confirms the legitimacy of the upward move.
Decreasing Buy Volume:
Potential Weakness: If buy volume decreases while the price is rising, it may indicate that buyers are losing interest or that the rally is running out of steam.
Caution for Reversal: Low buy volume can precede a pullback or consolidation.
Using Volume in Trading Strategies
Breakout Validation: When a stock breaks above resistance, high volume suggests the move is supported by strong participation.
Trend Reversals: Divergences between price movement and volume (e.g., rising prices on declining buy volume) can signal potential reversals.
Market Sentiment: Persistent high buy volume indicates bullish sentiment, while declining buy volume can point to hesitation or upcoming selling pressure.
EXAMPLE: PAY ATTENTION TO THE VOLUME BARS. Notice volume picking up then a large spike increase followed by continuation on volume providing the confirmation of the follow through which gave us our successful 1:1 target!
Volume analysis should be combined with other indicators, such as price action, support/resistance levels, and technical tools, for better decision-making.
Always remember: VOLUME LEADS PRICE