Volume Analysis

4 mins read
by Angel One
Volume analysis examines the number of shares traded to predict market movements. Indicators like NVI and PVI help understand the impact of volume on price, aiding in trend identification and trading decisions.

What is Volume Analysis?

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? Two technical indicators specifically designed for this purpose are the Negative Volume Index (NVI) and the Positive Volume Index (PVI). Created in the 1930s by Paul Dysart, these indicators gained significant popularity by 1975, featuring in the renowned technical analysis handbook, ‘Stock Market Logic’ by Norman Fosback.

NVI and PVI are calculated using a stock’s market price and its previous day’s trading volume. When the trading volume increases from the previous day, the PVI is adjusted. Conversely, if the trading volume decreases, the NVI is adjusted accordingly. These indices help capture how trading volume impacts a stock’s price.

The interpretation is straightforward: if the PVI increases or decreases, it signifies that price changes are driven by higher trading volumes. In contrast, if the NVI increases or decreases, it indicates that price fluctuations have little effect on trading volume. This differentiation allows traders to understand whether price movements are supported by strong trading activity or are occurring in low-volume environments, providing valuable insights for making informed trading decisions.

Additionally, these indices can be used to identify potential trends and reversals. For instance, a rising PVI during a bullish market may indicate sustained buying interest, while a declining NVI during a bearish market may suggest that selling pressure is diminishing. By incorporating NVI and PVI into their analysis, traders can enhance their ability to predict market behavior, refine their entry and exit points, and ultimately improve the effectiveness of their trading strategies.


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.


How do you calculate volume analysis?

Volume analysis involves examining the number of shares traded in a security over a specific period. Key indicators include the Positive Volume Index (PVI), which adjusts with an increase in trading volume, and the Negative Volume Index (NVI), which adjusts with a decrease in trading volume. These are calculated using the previous day’s volume and the current price movements.

What is an example of a volume price analysis?

An example of volume price analysis is using the Volume-Weighted Average Price (VWAP). If a stock’s price is above its VWAP, it indicates a bullish trend supported by higher volume. Conversely, if the price is below the VWAP, it suggests a bearish trend with significant selling pressure.

How do you trade with volume analysis?

Confirm Trends: Use volume to confirm price trends. A rising price with increasing volume indicates a strong upward trend.

Identify Reversals: Watch for volume spikes at market tops or bottoms to identify potential reversals.

Divergence: Look for divergence between price and volume, such as prices rising on decreasing volume, which may signal an upcoming reversal.

Entry/Exit Points: Use volume analysis in conjunction with other indicators to determine optimal entry and exit points for trades.