What is trading volume?

Trading volume is a technical indicator represented in a histogram that indicates the number of transactions that took place in a certain period of time. If we have a time frame of 5 minutes, each volume bar will show us the buy and sell transactions occurred in those 5 minutes. If we have a daily time frame, each bar will show us the transactions carried out between buyers and sellers on that day. Therefore the level of trading volume will not be the same in each TimeFrame.

What is the use of volume?

As traders we are not interested in knowing exactly how many shares were traded, what we want is to interpret and compare the volume with the information presented by the price. This is very important. We are going to compare the volume between the previous bars in relation to the price movement or context. Volume alone does not tell us much, but if we combine it with the candlestick formation, the price and its context we can make good entry and exit decisions. It sounds a bit complicated, but when you learn to interpret volume it will be the most important part of your trading.

High volume at a support or resistance level are strong indicators of supply and demand balance, which will allow us to be aware of how they react to enter in favor of the most likely move.

High volume at support and resistance breakouts is a sign of a strong trend and provides confidence to the trader or investor. It lets us know where the strength is and of course where the weakness is, whether it is buying or selling. It allows us to know when the professional money is present in order to go in favor of that intention.

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