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Price action is the most important indicator in the technical analysis universe, followed closely by volume. Volume may seem easy to interpret, but there are some nuances when it comes to analyzing stock volume indicators.

The stock market thrives on money being thrown its way. High volume prints tell us big money (from banks, hedge funds, and other institutions) is flowing in or out of a stock or other asset. It’s like a polygraph test – there is no lying when it comes to reading volume.

But it can be deceptive if you’re not careful, and certain volume prints can send you in the wrong direction.

How to analyze stock volume indicators

Interpret volume and price together

Volume and price tend to move together. Strong volume coupled with strong price action is undeniably bullish when a stock is rising. It often leads to higher prices down the road. With money pouring into a name, the price keep going up, and it sets up the stock (or other asset) for even more gains.

When a stock is selling off on high volume, this is a sign of distribution (or institutional selling). Big money fleeing a stock as quickly as possible means one of two things: They are taking profits now or trying to cut their losses before the stock prints even lower prices.

Analyze volume quality

Quality volume is important to analyze as well. Let’s say a stock is rising up in price but on lower volume. That may mean big money just does not have too much conviction in the price move. It may also mean the price move up is unstable and could crumble down quickly without the support of big money players.

On the flip side, if a stock moves down on lower turnover, it may mean there is a lack of conviction on the sell side. This sets you up for a nice “buy the dip” scenario – ideal when a stock is on a bullish streak and you want to jump on board.

Analyze price and stock volume indicators, study the quality of the volume, and you’ve got a good idea of whether a stock is bullish or bearish.

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