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How to interpret trading volume as a professional trader
Trading volume is one of the most important technical analysis indicators. It must be examined in conjunction with a security’s price movements.
High levels of trading volume indicate a significant price move. A consolidated breakout followed by high trading volume confirms the move. Trades with lower than average volume should be avoided.
How to use Trading Volume
- When a consolidation breakout occurs and today’s trading volume on breakout is higher than 130% of the 30-day moving average of trading volume, then enter the trade
- If trading volume is below 130% of the 30-day moving average avoid the trade
You can enter a breakout with high trading volume the next trading day.
Extreme values of trading volume
If trading volume is more than 200% of the 30-day moving average it could mean a trend exhaustion and a possible price reversal.