Technical Analysis Basics
Volume Analysis
Volume: The Truth Serum of the Market
Volume shows how many shares traded during a period. It's often called the "truth serum" because it reveals the conviction behind price moves. Price tells you what happened; volume tells you how significant it was.
Basic Volume Principles
Volume confirms price moves:
- Price up + High volume = Strong move, likely to continue
- Price up + Low volume = Weak move, may reverse
- Price down + High volume = Strong selling, more downside likely
- Price down + Low volume = Weak selling, potential bounce
- Price up + High volume = Strong move, likely to continue
- Price up + Low volume = Weak move, may reverse
- Price down + High volume = Strong selling, more downside likely
- Price down + Low volume = Weak selling, potential bounce
GME jumps 10% on 5x normal volume → Real buying pressure, trend likely continues GME jumps 10% on normal volume → Could be a short squeeze or low-liquidity spike, be cautious
Always check volume on significant moves
Volume Patterns to Watch
Climax Volume: Extremely high volume at the end of a trend often signals exhaustion and reversal
Dry Up Volume: Volume decreasing during a pullback is healthy - shows weak selling
Breakout Volume: Breakouts should occur on above-average volume to be valid
Volume Divergence: Price making new highs but volume declining = warning sign
Dry Up Volume: Volume decreasing during a pullback is healthy - shows weak selling
Breakout Volume: Breakouts should occur on above-average volume to be valid
Volume Divergence: Price making new highs but volume declining = warning sign
SUTOK calculates "Relative Volume" for you. A reading of 2.0x means current volume is double the average - significant activity!
On-Balance Volume (OBV)
OBV is a cumulative volume indicator:
- Green candle: Add volume to OBV
- Red candle: Subtract volume from OBV
Reading OBV:
- OBV rising while price rises = Accumulation (bullish)
- OBV falling while price falls = Distribution (bearish)
- OBV rising while price flat = Smart money buying before breakout
- OBV falling while price flat = Smart money selling before breakdown
- Green candle: Add volume to OBV
- Red candle: Subtract volume from OBV
Reading OBV:
- OBV rising while price rises = Accumulation (bullish)
- OBV falling while price falls = Distribution (bearish)
- OBV rising while price flat = Smart money buying before breakout
- OBV falling while price flat = Smart money selling before breakdown
Volume can be manipulated in low-float stocks. Be extra careful with meme stocks that can see artificial volume spikes.
Key Takeaways
- High volume confirms price moves; low volume suggests weakness
- Breakouts need above-average volume to be valid
- Volume climaxes often signal trend exhaustion
- OBV shows accumulation/distribution by smart money