Master volume indicators including OBV and VWAP. Learn how volume confirms or contradicts price movements in any market.
About 8 minutes · One knowledge check
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Volume is the number of shares, contracts, or coins traded in a given period. It is arguably the most important and most underutilised piece of information on any chart. Price tells you what happened. Volume tells you how significant that price move was. A price move on high volume has far more meaning than the same move on low volume — because high volume means many participants agreed on that price level, while low volume means the move may not have widespread market participation behind it.
Professional traders watch volume carefully because it reveals the true conviction behind price movements. Learning to read volume correctly can dramatically improve your ability to filter genuine breakouts from false ones.
Volume confirms price: Rising price on rising volume is healthy and sustainable. Rising price on falling volume is a warning sign — the move may not have enough buying conviction behind it.
Volume and reversals: A price reversal (such as a candlestick reversal pattern) accompanied by a spike in volume is much more significant than the same reversal on low volume. Volume at key levels confirms that the move is real.
Volume in breakouts: For a breakout of support, resistance, or a chart pattern to be reliable, it should be accompanied by above-average volume. A breakout on thin volume is more likely to fail and reverse.
OBV is a cumulative volume indicator that adds volume on up-days and subtracts volume on down-days, creating a running total. When price and OBV move in the same direction, the trend is confirmed. When they diverge — for example, price rises but OBV falls — it signals that volume is not supporting the price move and a reversal may be coming.
VWAP is the average price of an asset weighted by volume over a trading session. It is used by institutional traders as a benchmark. Price above VWAP = bullish intraday sentiment. Price below VWAP = bearish intraday sentiment. Many day traders use VWAP as a dynamic support and resistance level throughout the trading day.
Volume Breakout Confirmation: Before entering a breakout trade, check that volume is at least 1.5× the 20-day average. If volume is weak on the breakout, wait for confirmation rather than jumping in immediately.
OBV Divergence: If price is making new highs but OBV is not confirming those highs, prepare for a potential pullback. This is a high-value signal used by institutional traders.
Educational content. Volume analysis is a skill that improves with practice on real charts.
