What is volume indicator and how to use it to trade stocks?

What is the Volume Indicator?

In financial trading, the volume represents the number of shares or contracts traded in a particular asset over a selected period of time. Volume indicator measures the amount of a financial asset has been traded in a given period of time and indicates it as volume bars on the main chart window.

Volume is an unbiased indicator, it doesn’t indicate any buy or sell signal thus, not very much admired by many traders. However, the information of the volume indicator can be used to maximize the profit and minimize the loss.

How to set up the volume indicator on the TradingView platform?

TradingView allows its users to apply the volume indicator on its web-based trading charts. It is a built-in indicator of TradingView platform thus, you do not need to download it from other sources. Here is the process of inserting the volume indicator into the TradingView chart:

  1. Click on the ‘Indicator & Strategy’ button at the top left of the TradingView chart:
add or set volume on trading view - What is volume indicator and how to use it to trade stocks?

2. Scroll down the indicator menu and select volume:

word image 9 - What is volume indicator and how to use it to trade stocks?

3. Once you click on the volume button, You’ll find the volume indicator at the bottom of your main trading chart window:

show volume on trading view - What is volume indicator and how to use it to trade stocks?

Interpretation of the volume indicator

Volume indicator helps traders to assume the balance of supply and demands of the assets. A rising market with increasing volume represents higher demands from the buyers and lower supplies from the sellers. Contrarily, market falling with an increasing level of volume indicates the sellers are in control of the market and pushing the price further down where supplies are greater than the demands.

Bullish market on rising volume

rising volume on rising market - What is volume indicator and how to use it to trade stocks?

In this hourly chart of Facebook Inc., we’ve spotted a rising market and an increase in the volume at the same time. This kind of circumstances reflects a greater strength of the buyers that causes the increase in demand and indicate the initiation of a possible bullish trend. Volume indicator will not entertain you with direct buy or sell signals but it’ll assist you to project the upcoming scenarios of the market.

Bearish market on rising volume

increasing volume on bearish price - What is volume indicator and how to use it to trade stocks?

Volume increases but the price still keeps falling means that there is an excessive supply of stocks from the seller’s side. According to the economic theory, supply gets higher than demand means sellers are in the driving seat of the market and it is imminent that price will go further down for a while.

So, how does it help? Many traders focus on the level of entry first then thinks of the future of the entry. But we recommend you to think about the future of your entry first. Volume indicator helps you to forecast the future mode of the market trend (bullish or bearish) and helps you to decide whether it is safe to be on the seller’s side or the buyer’s side according to your projection. Once you decide about your trading mode (buy or sell), you may define the best possible areas to enter the market.

Increasing Price on decreasing volume:

Suppose, you’re witnessing a bullish market and everything looks great to go for a buy entry. But just after you enter a buy, the price starts to fall and keeps heading towards the stop-loss position. At a point, you might feel quite humiliating yourself and wonder, ‘why price falls when I buy a stock? Is market taking me personally?

This may sound funny but many traders experience such nightmares every day in the market. Buying in a bullish trend is an ideal strategy of trading. So, what was supposed to be wrong? It mostly happens when we ignore the market insights and volume is one of the facts which directly affect the market trends. Increasing price with decreasing volume expresses a lack of interest from the buyers and indicates a possible reversal of the trend.

decreasing volume on bullish stock - What is volume indicator and how to use it to trade stocks?

This is an hourly Apple Inc. chart, an example where the price was moving up following an uptrend of the market but suddenly changed its momentum into bearish and ended up as a downtrend. If you closely look at the volume bars, you’ll see the volumes were seemingly decreasing while the price was going up. The volume indicator clearly expressed a lack of demand for the stock compared to the supplies and resulted in a trend reversal at the end.

How about a bullish reversal?

Well, in such a case, we’ll need to look for an opposite scenario of your last example. A decrease in price with a decrease in volume indicates the possibility of a bullish reversal. It happens because a decreasing volume in a downtrend market represents the lack of supplies as well. This kind of situation is also expressed as the oversold condition of the market which often ends as a bullish trend reversal.

falling price action in bearish volume - What is volume indicator and how to use it to trade stocks?

This is an example of the bullish reversal. At the initial stage of the chart, both price and volume were decreasing at the same time. It means the supply of Apple Inc. is getting narrower against a possible rise of the demand and the stock is in the oversold condition. As a result, after coiling within a small range, the price started to jump higher with the increase in volume and transformed the bearish move into the bullish rally.

Why volume is irrelevant for Forex?

Forex is a place for decentralized OTC trading. There is no room to look at the actual volume of a currency pair. The volume bars you see in your Forex chart represent the total volume traded of any particular asset within your broker only. This is the reason why it’s often said that the volume provided by the brokers are quite useless.


Volume indicator defines the balance between supplies and demands of any particular asset within the centralized markets like stocks. Therefore, it plays a very important role in decision-making while trading in the market. Besides, this indicator can also be added with any sort of indicators or strategies for better trading outcomes.

Leave a Comment