Learning Guide For Trading With Volume Analysis

By Galen Woods ‐ 9 min read

Want to learn how use volume in your trading? This guide points you to over 40 resources where you can gain a solid understanding of volume analysis.

Want to learn how use volume to your advantage in trading? Confused by the many volume analytical theories and indicators out there?

You’re not alone. Although volume is a significant topic of technical analysis, the typical approach towards it has been piecemeal.

Here, you’ll find a roadmap to learn how to trade with volume.

This guide is designed to point you to the best resources where you can gain a solid understanding of a variety of volume trading topics.

To compile this guide, I’ve manually reviewed more than a hundred web pages. From the tons of resources out there, I’ve handpicked the most useful articles to advance your volume trading skills.

If you’re thinking of scouring the Internet to learn volume trading, you can now save your time and start studying immediately with the resources below.

Overview - Learning Guide For Volume Trading

  1. Definition of Volume
  2. Dow Theory and Volume
  3. Basic Volume Analysis Guidelines
  4. Volume Trading Strategies
  5. Volume Analysis Frameworks
  6. Volume Indicators
  7. Volume Charts
  8. Market Selection With Volume
  9. Volume Trading Books (for further study)

#1: Definition of Volume

Investopedia’s definition of volume:

Volume is the total quantity of shares or contracts traded for a specified security.

It can be measured on any type of security traded during a trading day.

It is measured on stocks, bonds, options contracts, futures contracts and all types of commodities.

Read a detailed breakdown of this definition here.

Market Specific Volume Jargon & Concerns

While volume is a universal concept in financial markets, there are slight nuances that might confuse you. So it’s better to get a firm grasp of these ideas before proceeding.

#2: Dow Theory & Volume

Take a couple of minutes to revisit the Dow Theory - a dominant technical analysis theory.

Appreciating the role of volume within the Dow Theory will help you understand its value.

#3: Basic Volume Analysis Guidelines

This section expands the Dow Theory premise into practical guidelines and examples.

Here, you’ll find links to tutorials showing you how to interpret volume together with price action.

It’s vital that you master the concepts in this section before moving on to other tools like volume indicators and chart types.

From the tutorials here, you’ll learn how to analyze volume in a variety of price contexts including:

  • Exhaustion or Spike
  • (False) Breakout
  • Reversal
  • Trend

As you go through the following tutorials, pay close attention to the chart examples.

  • [Link is broken, to be replaced] Using Trading Volume To Help Determine Entry and Exit Points - Start with this concise guide. It contains sharp illustrations that will help you digest the real market examples in the other tutorials below.
  • How To Use Volume To Improve Your Trading - Go through the examples here. The second part of the article deals with volume indicators. You can skip over those for now. (There’s a section dedicated to volume indicators below.)
  • [Link is broken, to be replaced] Analyzing Trading Volume: The Ultimate Guide - Detailed examples of volume analysis.
  • 4 Simple Volume Trading Strategies - Unlike the earlier articles, this one contains intraday volume trading examples.
  • Test Your Knowledge, Volume Interpretation - Review what you’ve learned with this quiz. Having trouble with the questions? Don’t worry; it points you to extra resources to help you brush up on your volume trading knowledge.

#4: Volume Trading Strategies

Hungry for more? Here are volume trading strategies that make use of the analytical guidelines covered above.

#5: Volume Analysis Frameworks

As you try to analyze volume on your charts, you’ll start to get conflicting signals. Yes, volume analysis can get confusing and complicated.

At this point, you can seek clarification with these established frameworks.

Volume Spread Analysis (VSA)

VSA is one of the most popular frameworks for volume analysis. Its core idea is to analyze volume with the help of the spread of a price bar (high-to-low range).

Learn more about VSA with these two articles:

Volume Profile

Volume Profile is the result of slicing the price/volume data differently.

Instead of focusing on how much volume traded within a period, Volume Profile highlights the volume traded within each price zone. The purpose is to find significant support and resistance zones.

  • Volume By Price - Volume Profile is also known as Volume By Price. In fact, Volume By Price is a more descriptive term for this approach. With detailed calculations, this article from StockCharts offers a solid explanation for traders new to Volume Profile.
  • Day Trading Without Charts: Volume Profile In Action - TraderPlanet’s article is less technical, but it dives deeper into the psychology behind why Volume Profile works.

Market Profile

Market Profile is a stricter version of Volume Profile. Like Volume Profile, it focuses on the distribution of volume by price. But it is an intraday trading method with more assumptions regarding market behavior.

There are fewer quality resources on Market Profile online so you will need to refer to the following books for in-depth knowledge.

#6: Volume Indicators

It’s always better to get familiar with raw price and volume analysis before learning about indicators.

Now that you’ve explored the volume trading frameworks above, here are three volume indicators that you should know.

Money Flow Index (MFI)

The MFI is a volume-weighted RSI.

Essentially, it combines price and volume into a momentum study to judge the current buying and selling pressure.

On Balance Volume (OBV)

The OBV is a cumulative volume indicator.

It is unique as its values do not matter. Instead, you should focus on the trend of the OBV indicator.

Volume-Weighted Moving Average (VWMA)

If volume is the fuel of the market, it makes sense to use it to adjust common indicators like the moving average.

And the VWMA is the result of doing just that.

#7: Volume Charts

Since volume data is crucial for price analysis, why not bring it to the foreground by building charts with it?

Constant Volume Chart

Constant volume charts plot price bars based on volume. It ignores the factor of time entirely.

EquiVolume

EquiVolume charts plot high-low bars with varying widths that reflect the volume traded. It offers a unique visual for integrating price with volume analysis.

#8: Market Selection With Volume

Volume is not just helpful for market analysis. It is also of great value when it comes to market selection.

The market volume reflects market interest and is related to its liquidity, volatility, and trending potential.

High Volume Stocks For Momentum Trading

Intraday Volume Pattern

Volume is not just useful for choosing which market to trade. It’s also of great value for determining when to trade them.

The intraday volume pattern shows the active period of each session. With this information, you can choose the best periods to trade.

Volume and Market Liquidity

Liquidity is critical for traders, and volume is a good proxy for liquidity.

#9: Volume Trading Books

The free resources above are enough for a robust understanding of volume analysis.

But if you need more structure or want to go deeper into the realm of volume trading, I recommend these books:

For more recommendations, visit this review on Top 10 Volume Trading Books.

And if you prefer video courses, check out this Udemy course - The Basics Of Volume Analysis.

Any suggestions to help us improve this learning guide? Please let us know here!

← 10 Resources For Learning Price Action Trading
Top 10 Automated Trading Courses On Udemy →