What Volume Tells You
What Volume Tells You
Volume is the total number of shares traded during a given time period. It appears as vertical bars at the bottom of most stock charts. While price tells you where a stock is going, volume tells you how much conviction is behind the move. Think of volume as the fuel that powers price movements.
Reading Volume Bars
On a chart, volume bars are displayed below the price chart:
- Tall bars — High volume, meaning many shares changed hands. There is strong participation from buyers and sellers.
- Short bars — Low volume, meaning few shares traded. There is less interest or activity in the stock.
- Green volume bars — Typically indicate the stock closed up for the day
- Red volume bars — Typically indicate the stock closed down for the day
Volume as Confirmation
Volume helps confirm whether a price move is genuine or likely to fizzle out:
- Price up + high volume = strong signal — Many buyers are pushing the price up. The move is likely to continue.
- Price up + low volume = weak signal — The price is rising but few people are participating. The move may not last.
- Price down + high volume = strong selling — Many sellers are driving the price down. Be cautious.
- Price down + low volume = weak selling — The decline may be temporary with limited selling pressure.
Volume Divergence
One of the most powerful signals occurs when price and volume disagree. For example, if Safaricom (SCOM) is making new highs but volume is declining with each new high, it suggests the uptrend is losing steam. Fewer and fewer buyers are supporting the higher prices. This is called bearish divergence and often precedes a reversal.
Conversely, if a stock is falling but volume is drying up, selling pressure may be exhausted, and a bounce could be near.
Volume on the NSE
On the NSE, volume can be quite variable. Blue-chip stocks like Safaricom and Equity tend to have the highest volumes, while smaller-cap stocks may trade very few shares daily. Always compare a stock's current volume to its own average — do not compare Safaricom's volume to a smaller company's volume.