The Relationship Between Volume and Price
The combination of volume and price is a powerful tool for a successful trading setup. It’s an indicator that shows where there is a high concentration of buyers and where there are fewer. Understanding this can significantly improve your trading skills.
How to Add Volume to Your Chart
Most traders use TradingView for its user-friendly interface and real-time data. However, you can also access charts through your own broker’s platform, which is often free. While TradingView offers a single free chart, your broker’s account will give you access to multiple company charts at no cost. For example, in Zerodha (a popular brokerage in India), you can add the volume indicator by following these steps:
- Log in to your mobile app.
- Click the arrow on the left side.
- Select the “Indicators” option.
- In the search bar, type “Volume.”
Click on the volume indicator when it appears. It will then be displayed below your price chart.
Typically, when the price goes down, the volume decreases, and when the price goes up, the volume also increases.
Understanding Volume Divergence
Volume divergence helps you understand a trend more easily. It shows whether buyers are decreasing or sellers are increasing. However, you should not rely solely on this indicator for trading decisions; there are other factors to consider.
Step 1: If the price is increasing but the volume is slowly decreasing, it suggests a potential reversal. When the price rises, those who bought earlier start to close their positions and book profits, which can cause the market to fall. This is because large institutional players influence market movements: when they buy, the market goes up; when they sell, it goes down. Volume helps us understand this trend.
Step 2 : If the price is decreasing but the volume is increasing, there is a high probability that the price could reverse and go up.
Step 3: If both the price and volume are increasing, it’s a strong buy signal. This indicates that more people are interested in buying than selling.
Step 4: If both the price and volume are decreasing, it’s a strong sell signal. In this scenario, people are more interested in selling than buying.
Note: Volume is a crucial indicator that provides insight into market activity. Major traders use it to determine the correct direction of the market. Few people teach about volume, and while there are some YouTube videos on the topic, they often lack complete information. By understanding and back-testing volume, you can trade with greater accuracy.
The Three Types of Trends
To succeed in intraday trading, it’s essential to understand market trends. Without following the trend, you will likely incur losses.
There are three types of trends:
- Uptrend
- Downtrend
- Sideways trend (also known as a ranging market)
In a sideways market, the price moves within a confined zone.
Intraday Trading in a Sideways Market
Yes, you can do intraday trading in a sideways market, but it requires a specific strategy. Option sellers often profit in sideways markets, even though the risk is higher. They manage this risk by using hedging, which acts like an insurance policy for their positions.
However, in equity intraday trading, traders tend to avoid sideways markets because the price fluctuates within a narrow range, making it difficult to make a profit. Most traders prefer to open positions in an uptrend or a downtrend, as they can profit whether the market is going up or down.