Support and resistance levels are price zones where market trends often pause, reverse or change direction. These levels act as psychological barriers for buyers and sellers, and volume is critical in measuring their strength.
Price rejection with high volume
When the price attempts to break through a support or resistance level but fails, and is accompanied by high trading volume, it indicates that buyers or sellers are strongly preventing that level from being crossed.
A price rejection with a high volume signals that the price level is significant, meaning it is more likely to hold when tested in the future.
Confirming breakouts and breakdowns
A surge in volume during a breakout (the price moves above the resistance) or breakdown (the price moves below the support) helps confirm a trend.
High volume indicates a strong, valid breakout or breakdown. Low volume suggests a false breakout, or a breakdown that should be approached with caution.
Confirming chart patterns
Some chart patterns are more reliable when analyzed alongside trading volume. That means you can identify potential breakouts and trend reversals with greater confidence. For example:
• Cup and Handle. Trading volume typically decreases during the “cup” formation. As the “handle” forms and breaks out, the volume increases, confirming the breakout.
• Head and Shoulders. Trading volume decreases when the “right shoulder” forms, signaling a weakening uptrend. Volume often surges as the price breaks below the neckline, confirming selling pressure.
