Volume Analysis

4 mins read
by Angel One

Volume Analysis Definition

The analysis of the contracts of a security or the number of shares that have been traded in a certain time period is known as volume analysis. Volume technical analysis is just one of the many ways in which technical analysts predict market movements to determine when their trades will be profitable. Stock volume analysis can inform various trading decisions. By looking at the trends in conjunction with price movements, investors can aid in determining the changes in a security’s pricing.

Any kind of analyst can look at the volume at which a security is trading so volume analysis is not restricted to professionals by any means. Generally speaking, when people refer to volume analysis, they are talking about the number of shares traded per day although it can also be used to ascertain the number of futures and options contracts a security has collected. By having an understanding of the trading volume in a certain market versus the trade’s entire trading volume and contrasting the two, a trader can easily gauge its demand. Furthermore, demand can forecast future market trends.

Inferences from trading volume analysis

What can volume technical analysis tell us about a certain security? Typically, a higher volume of trading carried out can show that the investor’s outlook on a market or security is positive. When the price of the security is high in conjunction with its volume traded, this is a sign that the market may continue in a bullish trend or experience a bullish reversal from an ongoing bearish trend. Similarly, when the price of a security drops significantly in contrast to its volume increasing, this is considered a sign that the security will move in a bearish way, or that a bullish trend is going to see a bearish reversal.

Hence, looking at volume can give insights into potential trends one may be able to see in the market. This is why volume is rarely ever considered on its own when it comes to technical analysis. It is taken into account with other parameters, the most common of which is the share price and how it changes. Volume is often charted by technical analysts on a daily basis as it is so crucial to help create a bigger picture of the market. In fact, volume charts can be easily accessed below the standard candlestick graph available on most technical indicator tools. Volume charts are depicted as an easy to interpret moving average trendline.

It’s very important for investors to keep in mind that there are always multiple factors responsible for a trend. Volume is not the only factor that can determine a trend although it can incorporate some balance into one’s trading decisions by offering insight into a trend. The more informed one’s trading decisions, the more likely it is that an investor is able to catch a developing trend and ride on its wave. Hence, volume is better used in conjunction with other technical indicators.

What Volume Analysis Indicators can I use?

Looking to incorporate volume into your trading decisions? Here are two technical indicators that have been designed for this exact purpose. There are the Negative Volume Index (NVI) and the Positive Volume Index (PVI). Both these indicators were created in the 1930s by Paul Dysart. by 1975, these indices had grown so much in popularity that they appeared in the famous technical analysis handbook called ‘Stock Market Logic’ by author Norman Fosback.

Both NVI and PVI are based on a share’s market price and its trading volume on the day prior. When the trading volume from the day before increases, the PVI is adjusted. On the other hand, suppose that the trading volume from the prior day decreases, then NVI is adjusted accordingly. By calculating these basic indices, one is able to easily capture how the volume of a share is directly impacting its price. The interpretation is as follows: Suppose PVI increases or decreases. This signifies that price changes are being carried out by higher volumes. On the other hand, let’s assume NVI decreases or increases, this means that fluctuating prices will barely affect the volume of the trade.


Volume analysis is an easy way for traders to get better insight into market moves. Volume is always looked at in conjunction with the stock price and other parameters.