Lesson 7 of 7 · Indicators
Volume
Volume shows who is participating.
Volume counts every share or contract traded in a period. A move on heavy volume has broad participation. The same size move on light volume can reverse quickly, because only a handful of orders caused it. Watch for volume spikes at resistance to judge whether a test has real force behind it.
Heavy volume at resistance.
The HEAVY VOLUME bar spikes as price approaches RESISTANCE. That surge tells you the level is being tested with conviction, not just probed.
Price is pressing resistance on rising volume. Which direction does it break?
Reveal what happened
It went up. Price broke above resistance and continued higher. Heavy volume behind a breakout means more committed buyers at the new price level, which raises the odds of follow-through. Not every volume-backed break holds, but light-volume ones fail at a much higher rate.
A stock clears a 52-week high. Volume is 40% of its 20-day average. What's the concern?
Show the answer
C. Low volume means few traders backed the move, raising the chance of failure. A breakout needs participation to hold. Light volume means most traders did not act on the signal, so a reversal back below resistance is more likely.