How to Use Volume in Trading - Use Volume to Improve Your Day Trading (2024)

What Do High and Low Volumes Indicate?

High volumes in a stock indicate higher investor interest in buying or selling a stock. Low volumes suggest a lack of liquidity, and a few traders/investors take an interest in the stock.

How are Volume and Price Related?

A price vs volume analysis can help in understanding bullish and bearing signs. For example, if prices decline at high volume, it indicates bearish sentiment and is likely to become stronger.

Similarly, if prices increase at high volumes, then it shows bullish sentiments are taking over. While they are related, it does not mean that their movements are always dictated by the other.

Using Volumes to Spot Momentum

Momentum shows the rate at which prices of a stock are changing over time and helps identify a trend. Rising prices indicate a bullish momentum, and falling prices indicate bearish momentum. A price vs volume analysis can also help in spotting momentum.

If the price is increasing at low volumes, it shows the bullish trend is losing momentum and indicates a likely reversal of a trend. The Moving Average Convergence Divergence (MACD) is a useful indicator of momentum. It helps traders identify when the bullish or bearish indicator is high to help them plan their exit or entry accordingly.

What are Common Volume Indicators?

There are three commonly used volume indicators, as shown below:

1. On Balance Volume (OBV)

OBV is a simple indicator that uses changes in volumes to help predict stock prices. As per OBV, there is a correlation between volume and price.

The overall direction of the On Balance Volume line helps traders understand the momentum.

For example, if the OBV line is rising, it indicates a bullish trend.

2. Chaikin Money Flow

Marc Chaikin, a famous American trader, invented the Chaikin Money Flow (CMF). CMF is useful in measuring whether buying or selling pressure is dominating the market.

According to Chaikin, if the closing price of a stock is close to its high, it indicates accumulation or buying pressure. If the closing price is closer to its low price, it shows selling pressure.

3. Klinger Oscillator

Klinger volume oscillator compares volumes with price, converts the result of the comparison into an oscillator and helps in predicting price reversals.

The oscillator identifies the long-term money flow trends for specific securities. The Klinger Oscillator is more complex than the OBV indicator.

Key Takeaways

  • Volume can be a very useful tool for understanding trends in stock prices.
  • Investors and traders use volumes to spot bearish or bullish momentum in stocks.
  • OBV, Chaikin Money Flow, and Klinger Oscillator are three commonly used volume indicators.
  • A price vs volume analysis is a better way of understanding trends rather than looking at price or volumes alone.


Technical analysts and day traders learn how to use volume in day trading for their day-to-day activities.

Like all technical analysis tools, volume indicators can also be used in combination with fundamental analysis tools and other technical indicators. Volume indicators will give you some trends, but they will all be based on past data. Past performance cannot always be relied upon to predict future prices.

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How to Read Candlestick Charts for Intraday Trading


How to Read Stock Charts


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How Long Should You Hold a Stock?


How to Select Stocks for Intraday Trading

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.

How to Use Volume in Trading - Use Volume to Improve Your Day Trading (2024)


How to use volume for day trading? ›

Volume is an important indicator that every day trader should understand. Generally, you want to look for stocks that have high volume. Rising volume and price often mean buyer interest, which makes the stock more liquid, and quicker and easier to buy and sell.

How do you use a volume profile indicator for day trading? ›

1. Select a time frame: Determine the specific time frame for which you want to analyze the Volume Profile, such as a day, week, or month. 2. Divide the time frame into price intervals: Divide the selected time frame into smaller price intervals, such as 0.5 points, 1 point, or any other desired increment.

What is a good relative volume for day trading? ›

The RVOL is displayed as a ratio. So if it is showing 3.5 relative volume, that means it is trading at 3.5 times its normal volume for that time period. As day traders we like to see RVOL at 2 or higher with a positive catalyst, low float and ideally a higher short interest.

What is the best indicator for volume? ›

There are two most popular and widely used volume indicators: PVI (Positive Volume Index) and NVI (Negative Volume Index) that help in volume analysis. The positive volume index is used to measure the positive impact or increase in the trading volume.

What is average day trading volume? ›

Average Daily Trading Volume (ADTV) refers to the number of shares of a particular stock that, on average, change hands during a single trading day. Significant deviations from the ADTV usually indicate greater or lesser buying or selling interest in the stock from large institutional investors.

Is volume important in day trading? ›

Volume is an important indicator in technical analysis because it measures the relative significance of any market move. If the market moves a large amount during a given period, then the strength of that movement either gains credibility or is viewed with skepticism based on the volume observed.

How to use Volume Profile for scalping and day trading? ›

Here are some ways that traders can use the volume profile in their trading strategy:
  1. Identify volume shelves. ...
  2. Analyze different timeframes. ...
  3. Analyze different ranges. ...
  4. Use volume profile with other indicators.

How to trade volume strategy? ›

If the recent data shows a high volume, traders can place orders along with the current trend, and if the recent data shows a decreasing volume, it is better for the traders to trade against the trend.

What is a good daily volume? ›

To reduce such risk, it's best to stick with stocks that have a minimum dollar volume of $20 million to $25 million. In fact, the more, the better. Institutions tend to get more involved in a stock with daily dollar volume in the hundreds of millions or more.

What are the perfect moving averages for day trading? ›

Five, eight, and 13-bar simple moving averages (SMAs) offer relatively strong inputs for day traders seeking an edge in trading the market from both the long and short sides. Moving averages work as macro filters as well, telling the observant trader the best times to stand aside and wait for more favorable conditions.

How do you use relative volume at time? ›

The formula used is: relative volume = current volume / average volume. If we assume the specified time period is 10 days and the RVOL ratio for a stock is 1.0, the formula indicates that the current volume trading is the same as its 10-day average volume.

What indicator do most traders use? ›

10 most popular indicators for trading
  • Moving Average Convergence Divergence (MACD) ...
  • Stochastic Oscillator. ...
  • Bollinger Bands. ...
  • Relative Strength Index (RSI) ...
  • Fibonacci Retracement. ...
  • Standard Deviation. ...
  • Ichimoku Cloud. ...
  • Client Sentiment. IG client sentiment provides insights into the positioning of traders in a specific market.

Which indicator is most profitable? ›

Best trading indicators
  • Moving average (MA)
  • Exponential moving average (EMA)
  • Stochastic oscillator.
  • Moving average convergence divergence (MACD)
  • Bollinger bands.
  • Relative strength index (RSI)
  • Fibonacci retracement.
  • Ichimoku cloud.

How to tell if volume is buying or selling? ›

With the total volume, the best you can do is make the assumption that if the price is going up then most of the volume is buying. If the price is going down then its more selling volume. Otherwise, you would need to look at the trade and/or quote bars to get a more precise representation.

How much money do day traders with $10,000 accounts make per day on average? ›

With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].

How do you know if volume is buying or selling? ›

High or increasing volume in an uptrend can signal a buying opportunity. Decreasing volume in an uptrend may suggest that it's time to sell and take profits. High or increasing volume in a downtrend can signal that it's best to stay on the sidelines.

What is the average 10 day volume? ›

Average volume (10-day): Indicates the size of the volume of shares being traded for the individual stock. This is an average of the last 10 trading days, so it measures activity over roughly two weeks. Last (time) and last (size): Shows the last trade for a stock and how many shares were bought or sold.


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