Mastering Volumes And What Every Trader Should Know

One of the hallmarks of trading is the ability to avoid loss-making trades. The basics of investment entail that once you place your money, the result follows a pre-determined gain trajectory. Any other consequence would result in a loss-making venture.

To succeed at trading, one would need to monitor previous volume patterns of the trading market. Usually, trading needs volume to keep going. To move from one price point to the next, trading markets require volume to make the shift.

Mastering trading volumes will give you a newfound conviction on the strength or weakness of an asset and further help decide where to place your money. Trading is a lucrative venture, and in the case of forex, trillions of dollars’ worth of trades are carried out daily. If you want a piece of this cake, then mastering forex is how you get into profitability.

So how do you master volumes while trading? You will need to understand the fundamentals surrounding trading volumes, volume indicators, and how you can capitalize on the signals these indicators send out to use in your trading strategy.

Read on to gain insight into how you can make the most of this trading parameter and achieve profitability in trading.

What is a volume in trading

Volume quantifies how much trading has taken place. More specifically, trading volume denotes the scale of trades that a given financial asset has been subjected to.

If you are dealing with stocks, then their volume would be given in terms of the number of shares traded. In the case of options traders, this would then be how many contracts changed hands over some time.

Trading markets often experience periods of increased activity. This points out that many traders are involved in active trading. The result is an increase in volume and a volatile market.

The volatility leads to significant shifts in price points and provides an opportunity to make good money in the process. This doesn’t only apply to the FX arena, but you can as well make money trading crypto, stocks, bonds et cetera.

Well, you don’t need large volumes to succeed at trading since even slimmer ranges will give you returns. However, trading tight ranges can sometimes be a risky affair owing to how little price movement occurs. In this case, therefore, the volume is pretty significant.

How can you measure trading volume?

Trading is affected by several factors that traders are hardly in control over. To be ahead of the game, you would need to identify when to trade more so when the value of trading instruments decline and sell when the opposite manifests itself.

Volume is an excellent place to start when deciding when to trade. In this case, you ought to quantify trading volume. Volume indicators are essential measures of trading volume, and they go on to give you precious signals when the market is favorable for entry or exit.

Volume indicators

Like all trading tools, volume indicators use mathematic formulas when quantifying trading volume. These indicators then portray the result on a trading chart, such as what you can find on TradingView. The display is easy to understand as compared to their seemingly complex formulas.

Check out some popular volume indicators you need on your trading chart.

1.       Chaikin Money Flow

Volume indicator - Chaikin Money Flow

Developed by Marc Chaikin, the Chaikin Money Flow indicator is considered the best in the game. It measures both institutional and accumulation-distribution.

In trading markets, an increase in the price of commodities follow a rise in trading volume. As such, the Chaikin Money Flow concentrates on the growing volume as prices close at either high or low ranges daily. It then provides a figure to correspond with the outcome.

The Chaikin indicator signals an expanding volume when the price finishes at a higher level of its daily range. The Chaikin value will then be in the highs. The vice versa holds when this price lies lower in the daily range.

Because it considers daily ranges, the Chaikin indicator is a popular short-term indicator due to the oscillation it displays.

2.       Klinger Oscillator

Klinger Oscillator

The Klinger Oscillator considers buying and selling volumes for a specific timeframe. Developed by Stephen Klinger, the indicator follows money flow trends for extended periods, all the while considering short-term shifts.

By comparing the scale of securities’ volume and their price movement, the Klinger oscillator comes up with a description of how different two moving averages are. This figure is not solely based on price.

Traders are keen on divergence that is shown on the oscillator to detect possible price reversal points.

3.       On Balance Volume (OBV)

On Balance Volume (OBV)

OBV is a powerful yet straightforward volume indicator. When markets close at highs, the volume is added ad subtracted when closing at a low. This shows you which stocks are accumulating through the running total.

Analyzing volume; what you should know

To get a proper feel of how the market moves in a particular direction, volume analysis is essential. As a trader, the last thing you want is to invest your money in a declining stock that would ultimately spell disaster for your trade.

As such, preference is afforded to strong moves. In the case of a declining movement, you can plot when to enter the market. Analyzing trading volume generally helps you decide when to trade and boosts your effectiveness at it.

The next time you analyze trade volumes, watch out for the following guiding principles.

·         Confirming a trend

Typically, rising prices are indicative of an upsurge in trading volumes. When many people are buying a commodity, the market volume goes up. More importantly, their enthusiasm follows a similarly rising trajectory.

Prices for the commodity then increase because the product is ‘hot-cake.’ However, an increase in price coupled with declining interest among traders indicates a possible price reversal.

Now when the price drops on a minor volume doesn’t warrant any drastic moves. On the other hand, when the price drops while the volume is topping out, it shows that something is wrong with the item. Buyers at this point are onto something about the trading instrument and are unlikely to keep up trading in it.

·         Bullish signals

When the price increase is accompanied by declining volume, we know that something in the stock has changed. On the other hand, when it is the volume that is surging against a price drop, it is a good sign that the market is adjusting down, and you ought to get ready to buy into the market.

When the price drop fails to drop below its previous lower point, and the volume diminishes, then a bullish sign is revealed.

·         Price reversals and volume

no matter how high a price for a stock will go, it will eventually fall. The market follows an up-down movement in the prices of commodities. The time taken for a rising value to fall is what traders are on the lookout for.

Prices will, at first, fluctuate with slight ranges at first despite a substantial prevailing volume in the market. This is the initial sign that the market is about to reverse. The price direction is expected to shift.

·         Exhaustion moves and volume

Exhaustion often indicates the end of a trend in the market and, consequently, how far you can ride on a trade. Exhaustion moves are shown by drastic price moves coupled with equally sharp volume shifts upward.

As prices climb, more buyers are roped in riding the trend. When the price drops, many traders are forced out of the trend, and we can then witness volatility in the market and amplified volume as well.

·         Breakouts and false breakouts vis a vis volume

Once a breakout in a range is spotted, it could indicate a strong move. If the volume drops, then the strength of the movement is in doubt.

Also, if the volume doesn’t see any change, you cannot count on the move. Generally, there is a lack of interest in the said stock or trading option to warrant a rise in trading volumes, and as such, there is a higher chance of the breakout being false.

The increasing volume shows that traders are actively involved in taking up the commodity, and hence you can ride on the progressing trend.

·         Volume history

Trading history provides a perfect starting point when you are gauging the viability of investing in the market. However, the farther back trading history goes, the less significant it is to the present trading scene.

Volume, as such, should be analyzed with recent data. This is because markets 10-20 years back are similar to that which we trade in today, and hence their information is relevant to your trades.  If you were to go back 50 years, you would find a completely different environment.


Volume trading is one way you can guarantee your profits, all the while protecting yourself from losses. Volume traders are keen on price trends as well as how the market volume appears.

In a nutshell, when there is a significant trading volume, you are better placed to open a position in the market. On the flip side, decreased trading volume points to bearish divergence, and you should sell.

With the basic guidelines discussed, you should be able to make headway when analyzing the strength of the market or weakness, if present. While volume indicators are not an encompassing indicator, they add much-needed insight into the market dynamics and should be part of your decision-making process.

Paul Mukara
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