The Negotiation Volume and Price Relationship: How to Get More for Your Money

The negotiation volume and price relationship is an interesting one. Volume (trading or negotiation volume) indicates the magnitude with which an asset has been traded between two parties, the buyer and the seller. The volume shows the interest of the market in the negotiation of an asset during a period of time.

For instance, a Japanese candle is associated with a price or range of prices. In short, volume measures the interest of investors in trading an asset at a certain price and at a certain time.

👉 Don't you know the rest of the indicators that can be essential in our understanding of the information provided by the price? Discover them in the following article: Technical indicators

When the volume is low, the market is not interested in trading the asset at that price. If, for example, the price breaks an upward trend line or strong support with strong volume, the market is valuing that asset no longer at an appropriate price and should be quoted much lower.

At that moment the volume increases as a result of an increase in trading, that is, many more investors will be willing to sell and buy. The first will think that the asset has lost interest, and the second that now the asset is at attractive prices. In addition, we must consider the buy and sell orders placed at those prices. In the face of massive stock sales, all buy orders placed at those prices will be executed immediately.

That said, we must know that it is most common for the volume to accompany the trend. Thus, in an upward trend, it is most likely that the volume traded will increase as investors join the trend. Subsequently, there will come a time when the volume traded will be decreasing.

When the volume stops accompanying the trend, either upward or downward, it is a sign that the end of the trend is near. Despite all this, we must point out that there are atypical situations in which price and volume do not behave this way, but what must be clear is that if the volume accompanies the movement of the price, that movement will have a greater probability of developing the expected movement

Next we can observe the daily volume and quotation of Special Ingots, from September 2015 to July 2016. It is observed how the trend has been clearly upward, and how the volume has been very high at moments when the trend has taken a new impulse.

👉 Other technical indicators


Can trading volume be used as a standalone indicator?

While trading volume can provide valuable insights, it is typically used in conjunction with other technical indicators and analysis tools. Combining volume analysis with other indicators can help you make more informed trading decisions.

How can traders interpret the relationship between trading volume and price?

Traders often analyze the relationship between trading volume and price by looking for volume spikes or divergences. A significant increase in volume during a price rally or decline may suggest strong market interest and validate the continuation or reversal of the trend.

Does trading volume always accompany the trend?

It is common for trading volume to accompany a trend, however, there can be atypical situations where volume does not behave in the expected way. If the volume confirms the movement of the price, it generally increases the probability of the expected movement to develop.

Related Articles