Volume analysis is a cornerstone of technical analysis, providing crucial insights into market activity and potential price movements. TradingView offers powerful tools to visualize and interpret this data, making it an essential platform for traders of all levels. Understanding how to read volume on TradingView can significantly enhance your trading strategy by revealing the strength behind price moves.
What Is Trading Volume?
Market volume represents the total number of shares or contracts traded for a specific security during a given period. This metric is available across various timeframes—from monthly and daily charts down to minute-based intervals—for assets traded on centralized exchanges like stocks, futures, options, and commodities.
Forex markets operate differently, lacking a centralized exchange, which makes volume data less straightforward.
Volume data appears in several formats on trading platforms:
- Volume Histogram: A bar chart typically displayed at the bottom of the price chart.
- Volume Profile: A tool showing volume at specific price levels.
- Depth of Market (DOM): A real-time display of buy and sell orders.
How TradingView Displays Volume
TradingView primarily features two volume analysis tools: the standard Volume Histogram and the more advanced Volume Profile. This guide focuses on the foundational histogram tool, accessible through TradingView's indicators menu.
Once added, the volume indicator appears as a histogram at the chart's bottom. It uses colored bars (default green and red) accompanied by a moving average line.
The moving average, often set to 9 periods, shows the average volume over a specific number of sessions. This helps traders quickly identify whether current volume is above or below average, signaling unusual activity.
The bar colors correspond to the price candle for that period: green for a bullish (up) period and red for a bearish (down) period. This coloring does not indicate buy volume versus sell volume. Since every trade requires both a buyer and a seller, the volume simply shows the total number of shares or contracts exchanged.
The histogram updates automatically with your chart's timeframe. On a daily chart, each bar shows one day's volume. On a 5-minute chart, each bar represents five minutes of trading activity.
Interpreting Volume and Price Action
Volume often leads price movement. Significant volume spikes typically indicate strong interest from large participants, which can foreshadow substantial price moves.
Imagine a major investor initiating a large buy order. This activity creates immediate demand, often pushing prices higher. Other traders may notice this increased activity and volume, interpreting it as a signal to join the move, further amplifying the trend.
This principle applies to all timeframes and market directions. Sustained high volume in one direction suggests the trend may continue until volume patterns change.
To effectively analyze volume, compare it to two key benchmarks:
- Recent Historical Volume: Is the current volume bar significantly larger than those from prior sessions?
- Volume Moving Average: Is volume exceeding or falling short of the average?
These comparisons help gauge the strength of the current price movement.
Practical Volume Analysis Examples
Case 1: Resistance Test with Fading Volume
A stock approaches a known resistance level—a price where selling pressure has previously emerged—while in a overall downtrend. The chart shows several concerning volume signals:
- Green (up) days show volume falling below the moving average as price nears resistance.
- Red (down) days begin appearing with above-average volume.
- This combination—weak volume on up days and strong volume on down days—suggests sellers remain in control, increasing the likelihood that resistance will hold and the downtrend will continue.
Case 2: Support Defense with High Volume
Price declines to a key support level—a price where buying interest has historically emerged—and forms a large bullish reversal candle. This candle appears alongside a massive volume spike, far exceeding the moving average.
This signals aggressive buying at the support level, suggesting strong defense of this price zone. Subsequent price action shows reduced volume on down days and increased volume on up days, confirming buyer dominance and suggesting a potential trend reversal.
Case 3: Trend Exhaustion with Diverging Volume
During an extended price rally, volume begins declining despite continuing green candles. This creates a divergence: price continues rising, but volume fails to confirm the strength of the move.
When price finally reaches a significant resistance level, red candles appear with volume consistently exceeding the moving average. Meanwhile, green candles show minimal volume. This indicates that sellers are active with conviction during declines, while buyers lack enthusiasm during rallies—a classic sign of a weakening trend and potential reversal.
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Frequently Asked Questions
What does the volume histogram color mean on TradingView?
The colors correspond to the price candle for that period. A green volume bar indicates the period closed higher than it opened, while red indicates a lower close. It does not represent buy volume versus sell volume.
Why is volume important for technical analysis?
Volume confirms the strength of price movements. High volume during a price advance suggests strong buyer commitment, while low volume during a rally may indicate lack of conviction and a potential reversal.
Can I use volume analysis for day trading?
Absolutely. Volume analysis works across all timeframes. Day traders often use minute-based charts alongside volume indicators to confirm breakout strength or spot reversals in real-time.
How do I add the volume indicator to my TradingView chart?
Click the 'Indicators' button on the top toolbar, search for "Volume," and select the standard volume indicator from the list. It will automatically appear at the bottom of your chart.
What is a good volume moving average period setting?
The 9-period moving average is commonly used, but some traders prefer 20 periods for a longer-term perspective. Experiment with different settings to find what works best for your trading style and timeframe.
Does volume work the same for all markets?
Volume analysis is most reliable for assets traded on centralized exchanges (stocks, futures). Forex volume data is less standardized since trading occurs over-the-counter without a central exchange, making interpretations less consistent.
Mastering Volume for Confident Trading
Effectively reading volume on TradingView requires understanding what the histogram represents: the total contracts or shares traded per period, not buy/sell imbalance. By comparing current volume to its recent history and moving average, you gain valuable insights into market strength and potential trend changes.
Consistent volume analysis, combined with other technical tools, creates a powerful framework for making informed trading decisions across various markets and timeframes.