Volume Indicators
Volume: The Fuel Behind Price Moves
Volume is the number of shares traded during a given period. It is one of the most important pieces of data in technical analysis because it confirms the strength or weakness of a price move. A price breakout on high volume is far more significant than one on low volume.
Why Volume Matters
- Volume confirms trends — A price increase on rising volume shows strong buying conviction. A price increase on declining volume suggests the move may lack sustainability.
- Volume precedes price — Often, volume spikes before a significant price move, as informed investors (institutions, insiders) begin accumulating or distributing shares.
- High volume at key levels — Heavy volume at support or resistance levels indicates these levels are significant and likely to hold or break decisively.
On-Balance Volume (OBV)
OBV is a cumulative volume indicator that adds volume on up days and subtracts volume on down days. The theory is that volume flow should precede price movement:
- Rising OBV — More volume is flowing into the stock on up days, suggesting accumulation (buying).
- Falling OBV — More volume is flowing out on down days, suggesting distribution (selling).
- OBV divergence — If the price is flat but OBV is rising, smart money may be accumulating the stock before a breakout.
Volume Moving Average
A volume moving average (typically 20-day) helps you identify whether today's volume is above or below normal. A volume spike — significantly above the average — often accompanies important price events like breakouts, breakdowns, or trend reversals.
Volume Analysis on the NSE
On the NSE, volume analysis is particularly useful for stocks like Safaricom (SCOM) where daily volume is consistently high. If SCOM normally trades 10 million shares per day but suddenly trades 30 million shares while breaking above a resistance level, the unusually high volume strongly confirms the breakout. For less liquid stocks, be cautious — a single large block trade can create misleading volume spikes.
Price tells you what is happening. Volume tells you how significant it is.