Measuring trend strength
The Volume indicator provides great insight into how strong a trend is:
• In an uptrend, higher volume on up days (days in which the price has increased) and lower volume on down days suggest strong buying interest.
• In a downtrend, higher volume on down days and lower volume on up days suggest strong selling pressure.
If the volume lowers during a trend, it’s a signal that the trend’s momentum is weakening, which may lead to a reversal.
Detecting divergences
A divergence occurs when an asset’s trading volume and price move in opposite directions.
Example:
If the price forms higher highs while volume decreases, it could indicate that the uptrend is weakening, and a reversal may be approaching.
Identifying trend reversals
Changes in trading volume can help spot potential reversals before they happen. For instance, declining volume often indicates a trend is losing steam and may be reaching its end.
Tip:
Combine the Volume indicator with chart patterns and other technical tools to spot potential trend changes more accurately. That way, you’ll get a clearer view of market shifts before they happen.