Hi all !! In my previous article I had discussed “ How to find the strongest stocks in a sector showing similar chart patterns “ . Hope that article would have given you some value-addition to your trading skills. In this article I am going to talk about another price action skill, which at times is neglected by traders, particularly when one is a beginner.

The skill I am mentioning here is about “analyzing the volume and price correlation in the right way”.

So, without wasting the time let us go to the topic and explore how one can do the Volume analysis properly using multiple time frames. I will cover some current and recent examples for explaining my thoughts on volume analysis. 

Volume Analysis:

Volume analysis is an important aspect of technical analysis in stock trading. It involves studying the trading volume of a security, which refers to the total number of shares traded during a specific period. Analyzing volume can provide valuable insights into the strength and sustainability of price trends. Here are some key aspects of volume analysis in stock trading:

• Volume Confirmation:
  • When prices move in the direction of increasing volume, it is considered a confirmation of the trend. For example, in an uptrend, rising prices accompanied by increasing volume suggest strong buying interest.
• Volume Divergence:
  • Divergence between price movements and volume can indicate potential reversals. For instance, if prices are rising, but volume is decreasing, it may suggest weakening bullish momentum, and a reversal could be on the horizon.
• Volume Spikes:
  • Unusual spikes in trading volume can signal significant market events. For example, a sudden increase in volume may accompany important news, earnings reports, or other events that can impact the stock.
• Volume Patterns:
  • Certain volume patterns can be indicative of trend reversals or continuations. For instance, a breakout accompanied by high volume is often considered more reliable than a breakout with low volume.
• Climax Volume:
  • A climax in volume often marks the end of a significant trend. Climax volume refers to an exceptionally high volume that occurs near the peak of an uptrend or the trough of a downtrend, signaling a potential reversal.
• Volume at Support and Resistance Levels:
  • Analyzing volume at key support and resistance levels can provide insights into the strength or weakness of these levels. For example, increasing volume at a support level may suggest strong buying interest, while decreasing volume may indicate weakening support.

Volume analysis using multiple time frames:

The key aspects of volume analysis discussed above are very common and if you are trading for quite some time, you would already have experienced it in real time. 

But, one thing that is not much talked about is deeper understanding and analysis of volume expansion in Multiple time frames.

For example, in a daily chart the volume might be huge with price going down, while when we see the price action in the hourly chart it may depict a different picture. 

See the chart of ANGELONE below: (Daily Chart) with 50 EMA:

See the big red candle along with the big red volume. Also the stock has shown some recent run up. For a normal trader it may look like a top is forming. Something like a climax top. One may be tempted to sell their positions immediately on seeing this.

What do you think right now?? 

But, let us go into the hourly time frame and see what has happened, in that same time zone. Let us dwell into that price action and see.

Now, how are you feeling about the trade? Thinking of closing the position? Does the above chart tell you that the price action is abnormal as it is shown in the daily chart? No right? Your entire view would have changed now in a minute. The stock is going from strength to strength and is forming a new base.

See the weekly chart below. Biggest close on upside with biggest volumes in recent times.

From that week, the price has been on a running spree and is now trading well above 25% as of today (Dec 5-2023). This is the reason why analyzing volumes through multiple time frames is very important.

Let me show you some other examples, with similar price action and volume action. 

I won’t go into trivial details. All the images are self explanatory. Take a good look and you will understand the concept.

ALSO READ:

“HOW TO FIND THE DARK HORSE USING RELATIVE STRENGTH – A proven trick to make money in stock market “

wealthinzen.com

MAN INFRA:

However, see the price action in hourly time frame for the same period.

HINDUSTAN AERONAUTICAL (HAL):

Another example: Daily Chart of HAL

Hourly chart:

Key Takeaways:

Understanding the volume analysis helps a trader to exploit the situation in his favor.

A deep analysis of the volume spread using multiple timeframes will definitely turn the edge towards us.

However, it is equally important to know how to manage positions, how to take risks and understand the concept of risk reward ratio in its true form.

If you are more interested in reading about volume analysis, you can read the book by “Anna Coulling – A Complete guide to Volume Price Analysis” .

Also check out the book by Tom Williams – Trading in the shadow of smart money. This book talks a lot about Volume Spread Analysis.

wealthinzen.com

If you like my articles, you can consider subscribing to my newsletters. My articles will reach you directly to your mail. If you have any doubts / questions / suggestions do write to [email protected].