Series: Learn Trading — Day 4 of 24
Price tells you what happened. Volume tells you who cared.
You can draw the prettiest trend lines, layer on moving averages, and still get faked out — because you ignored volume. Today we fix that.
What Is Volume?
Volume is simply the number of shares (or contracts) traded in a given period. On a daily chart of Reliance, if 8 million shares changed hands, that day’s volume is 8M.
On NSE, you’ll see volume on every stock and index derivative. Open your Sahi terminal, pull up any chart — that bar chart sitting at the bottom? That’s volume.
Why Volume Matters
Think of volume as conviction behind a move.
- Price up + volume up → Buyers are aggressive. The move has legs.
- Price up + volume down → Fewer people are participating. The rally is getting tired.
- Price down + volume up → Sellers are dumping with conviction. Respect the move.
- Price down + volume down → Selling is drying up. Could be near a bottom.
That’s literally 80% of volume analysis. Four combos. Memorize them.
Volume Confirms Breakouts
This is the single most useful application of volume for beginners.
Say Nifty has been stuck between 22,000 and 22,500 for two weeks. One morning it gaps up to 22,600. Is this real?
Check the volume.
If that breakout candle has significantly higher volume than the average of the last 10-20 days — it’s likely real. Institutions are stepping in.
If the breakout happens on thin, below-average volume — be skeptical. It could be a false breakout that traps buyers before reversing back into the range.
Rule of thumb: A valid breakout should have at least 1.5x the average volume. Some traders want 2x. The exact number matters less than the principle — breakouts need participation.
Volume Precedes Price
This is a concept that separates beginners from intermediate traders.
Often, volume starts picking up before the price makes its big move. Here’s how it plays out:
- Stock has been flat for weeks — low volume, nobody cares
- Volume starts creeping up while price barely moves
- Suddenly, price explodes in one direction
That volume buildup in step 2? That was accumulation (if price later goes up) or distribution (if it later goes down). Smart money was positioning before the move.
Next time you see a stock where volume is rising but price isn’t doing much — pay attention. Something might be brewing.
Reading Volume on Indian Markets
A few India-specific things to know:
Delivery percentage — NSE reports what percentage of traded volume resulted in actual delivery (shares changing hands in demat accounts) vs intraday squaring off. High delivery percentage on an up day = genuine buying. You can check this on NSE’s website or on Sahi’s reports.
F&O volume and Open Interest — For Nifty and Bank Nifty futures, volume tells you activity, but Open Interest (OI) tells you positioning. We’ll cover OI properly when we get to futures, but for now:
- Rising OI + rising price = new longs being built (bullish)
- Rising OI + falling price = new shorts being built (bearish)
- Falling OI = positions being closed, not new ones opening
Expiry days — Volume on weekly expiry Thursdays is misleading. It’s inflated by options expiry mechanics, not genuine directional conviction. Don’t read too much into Thursday volume spikes.
Volume Moving Average
Raw volume bars are noisy. A simple trick: overlay a 20-day moving average on your volume bars. Most charting platforms (including Sahi’s) support this.
Now you can instantly see:
- Is today’s volume above or below average?
- Has volume been trending up or down over the past month?
- Did that breakout candle actually stand out?
It turns volume from “some bars at the bottom” into actionable information.
Common Volume Patterns
Climax Volume
A sudden, massive spike in volume — often 3-5x the average. This usually marks the end of a move, not the beginning. If TCS has been rallying for three weeks and suddenly prints a huge volume bar on a big green candle, that could be a blow-off top. Late buyers are piling in, and smart money is selling to them.
The same works in reverse — a huge volume spike on a sharp red candle after a long decline could mark a selling climax (capitulation).
Dry-Up Volume
Volume gradually shrinks over several days or weeks. This often happens inside consolidation patterns (triangles, flags). The dry-up signals that a big move is coming — the spring is coiling. Combined with what we learned in Day 2 about chart patterns, this is powerful.
Volume Divergence
Price makes a new high, but volume on that high is lower than the previous high. This is a warning sign. The trend is losing participation. It doesn’t mean “sell now” — but it means be alert.
Practical Exercise
Open Sahi, pull up Nifty 50’s daily chart for the last 3 months. Add a 20-period volume MA. Now:
- Find a breakout day. Was volume above or below the MA?
- Find a reversal. Was there a volume climax?
- Look at any consolidation zone. Did volume dry up before the next move?
You’ll start seeing these patterns everywhere once you know what to look for.
Key Takeaways
- Volume = conviction. Always check if a price move has volume backing it.
- Breakouts on low volume are suspects until proven otherwise.
- Volume often moves before price — watch for accumulation/distribution.
- Use a 20-day volume MA to filter out noise.
- Climax volume often marks ends of moves, not beginnings.
- In Indian markets, delivery percentage and OI add extra context.
What’s Next
Tomorrow — Day 5: RSI (Relative Strength Index). We’ll add our first oscillator to the toolkit, helping you identify when stocks are overbought or oversold. Combined with today’s volume knowledge, you’ll have a solid foundation for reading market conditions.
This is Day 4 of a 24-day series on trading. Start from Day 1: Trading Foundations if you’re new here.