7.23What is volume analysis?
1What is it?
Volume analysis studies trading volume to judge the strength behind price moves.
2Why does it exist?
Moves on high volume show conviction; moves on low volume are weaker and more likely to reverse.
3Diagram
4Practical use
Rules of thumb: breakout + rising volume = stronger; rally on falling volume = weakening; huge volume after a long fall can mark capitulation (panic selling).
5Quick revision
- Volume confirms price.
- Breakouts need volume.
- Divergence (price up, volume down) is a warning.
6Knowledge check
Q1. Breakout on low volume: strong or weak?Show answer
Weaker, more likely to fail.
Q2. What is capitulation?Show answer
Panic selling on very high volume, often near a bottom.
Q3. Where is volume shown on charts?Show answer
Bars below the price chart.