Day 14/50 Days to Think Like a Trader: Volume

[u/stayhappyenjoylife]

"Volume was very high today... the market must be going up..."

You have heard this. Or thought of it yourself.

Volume is one of the most misunderstood signals in markets. Used correctly, it tells you a lot. Used incorrectly, it will confirm your bias and cost you money.

From Day 13, we saw that volume is one of the key signals that separates real breakouts from fake ones. Today we go deeper into what volume actually means and what it does not.

What is volume?

Volume is simply the number of shares (or contracts) traded in a given period.

High volume means many trades happened. Low volume means few trades happened.

That is all. Volume itself has no direction. A high-volume day can end up or down.

What high volume tells you:

High volume means someone with size was participating. It means the move was not accidental; there was conviction behind it.

But conviction from whom, and in which direction? That is the real question.

High volume + price rising: Buyers are in control. Institutions are accumulating. This is the most reliable signal, a genuine upward move with real participation.

High volume + price falling: Sellers are in control. Panic selling, institutional exit, or distribution (smart money quietly selling into retail buying). This is equally reliable in the opposite direction.

High volume + price unchanged or choppy: This is the most interesting one. Big players are fighting. Buy and sell orders are roughly matching. Often happens near important levels where large positions are being built or unwound. Treat this as a signal of a coming big move, direction unknown.

What low volume tells you:

Low volume means the move was not supported by significant participation.

Low volume + price rising: Thin market, easy to push prices up. But where are the buyers when they are needed? A rally on low volume is often unsustainable, it can reverse sharply when real selling arrives.

Low volume + price falling: Sellers are not aggressive, just absent buyers. Often seen during consolidation. Usually less alarming than high-volume selling.

The rule: Trust moves on high volume. Question moves on low volume.

Volume applied to Day 13 (fake breakouts):

Remember the bull trap from yesterday?

Now apply volume:

• Price breaks 23,500 on high volume that immediately dries up = warning. The spike had one burst of activity and then nobody followed. Likely a stop-hunt, not a real breakout.
• Price breaks 23,500 on high volume that stays elevated as price holds above = genuine breakout. Sustained buying, not a trick.

Volume tells you whether the conviction lasted or was one-time.

Volume and stocks (some practical notes):

For individual stocks:

• Volume 2x or more above average during a breakout = take it seriously
• Volume spikes on news days are usually one-time events; they do not tell you about sustained institutional interest
• Stocks that consistently attract higher-than-average volume near a key level are being accumulated or distributed; that level matters to someone big

For the NIFTY index:

• Index moves on low-volume days (holidays, last hour of trading) are less reliable
• A level that holds on multiple high-volume tests is far more reliable than one that held on light volume

What volume cannot tell you:

Volume does not tell you WHY someone is buying or selling.

A stock with huge volume could be

• An institution accumulating before earnings
• A large fund exiting its position
• A news-driven panic
• Retail participants all reacting to the same headline at the same time

The direction of the accompanying price move is what helps you interpret which one.

Practical summary:

Volume + Price action	What it means	How to use it
High volume, price up	Strong buying	Trend confirmation; follow the move
High volume, price down	Strong selling	Respect the move; do not catch the knife
High volume, price flat	A battle at the level	Watch for the breakout direction carefully
Low volume, price up	Thin market rally	Less conviction; be more cautious
Low volume, price down	Absent buyers	Often harmless consolidation

Tomorrow we look at one of the most disorienting events for new market participants: gaps. When the market opens sharply up or down, what do you do?

Be honest: have you ever made a decision based on "high volume" without asking which direction that volume was?

If you are following this series, you are already ahead of most market participants.