Those who have already been in trading will know that volume is the number of units of a given financial asset that has been traded in a certain period of time. Many beginner traders may be quite unaware that volume can also be a powerful tool to use for trading. It can be an important indicator that most traders seem to overlook most of the time.

Volume information is always readily available. It might be because of this that many traders simply take it for granted. But for those with considerable trading experience the use of volume as a tool for trading can’t be highlighted too much. Here are some of the ways that volume can be used to improve trading.

Volume Basics

Before taking volume into consideration as a tool for trading, traders should have a idea on how to determine the strength or the weakness of a move. Analyzing volume would be useful if certain guidelines are followed when it comes on when to enter a certain position and when to get out.

Volume And the Market

Whenever there is a rising market, a rise in volume also seems to follow. There might be a need for an increasing number of volume that would push prices even higher. This may show that there is a rising enthusiasm in the market for a certain financial asset. If there is an increasing price and a decreasing volume, this may show that the market may be lacking in terms of gaining interest among buyers and traders. In such a case, there might be a potential for reversal at any time. A change in price on a large volume ay indicate a strong signal of this happening.

Bullish Signals

Volume can also be used to identify bullish signals in the market. If an increase of volume is experienced even on a price decline but then moves up. If it is followed by a second decline with the price moving down but stays higher than the previous low with the volume diminished, this may be considered as a bullish sign.

Volume And Breakouts

Volume may also be a good indicator to determine a true or false breakout. If, on a chart, there is a breakout determined, a rise in volume may signal a genuine breakout. But if the breakout shows little change or even declining volume, then it may be considered as a false breakout.