Volumes & Their Significance

Volume is the total number of shares traded during a given period. On any NSE chart, the vertical bars sitting below the price candles represent volume. Each bar tells you how many shares changed hands that day.

Why should a swing trader care? Because volume reveals the conviction behind a price move. A stock can rally 3% on a random Tuesday, but if only a handful of shares were traded, the move carries little weight. Institutional traders, mutual funds, and FIIs move serious quantities when they are genuinely accumulating or distributing a stock. Their footprint shows up in volume.

Think of volume as the crowd's voice. A solitary person shouting in an empty room is easy to ignore. But when an entire stadium roars, you pay attention. Price tells you the direction; volume tells you whether the market truly believes in that direction.

• High volume on an up-move: Strong institutional buying, more likely to sustain.
• Low volume on an up-move: Retail-driven or speculative, treat with caution.
• High volume on a down-move: Aggressive selling, possibly panic or institutional exit.
• Low volume on a down-move: Mild profit-booking, the downtrend may be losing energy.

This is the single most important table in volume analysis. Memorise it. Every time you look at a chart, mentally map the day's price action and volume to one of these four scenarios.

Consider TATASTEEL during a recent rally. Over three consecutive sessions, the stock moved from Rs.125 to Rs.134. On Day 1, volume was 1.8x the 10-day average. On Day 2, it was 2.1x. On Day 3, it dropped to 0.7x. The first two days confirmed strong buying interest. But the third day — price still up but volume collapsing — was the signal that the rally was running out of fuel. Traders who recognised the price up, volume down pattern on Day 3 avoided chasing at the top.

Saying "high volume" or "low volume" is meaningless without a benchmark. The standard approach is to compare today's volume against the 10-day average volume. This gives you a rolling baseline that adjusts to the stock's recent activity.

• Valid signal: Today's volume is at or above the 10-day average.
• Weak signal: Today's volume is below the 10-day average — treat any price move with scepticism.
• Strong signal: Today's volume is 1.5x to 2x the 10-day average — the move carries serious conviction.

Let us walk through two real scenarios:

Scenario A: SBIN Breakout (Confirmed)

SBIN had been consolidating between Rs.600 and Rs.620 for nearly three weeks. Its 10-day average volume was around 1.2 crore shares. On the breakout day, the stock closed at Rs.628, decisively above the Rs.620 resistance, and volume surged to 2.4 crore shares — exactly 2x the average. This kind of volume expansion on a breakout tells you that institutions are participating, not just retail traders chasing the move. A trader who entered at Rs.622-625 with a stoploss below Rs.610 had a high-conviction setup.

Scenario B: ITC Breakout (Suspect)

ITC had been hovering around Rs.445-450 for two weeks. Its 10-day average volume was approximately 1.5 crore shares. One morning, the stock opened above Rs.450 and traded up to Rs.456. However, the day's volume came in at only 0.9 crore shares — well below average. The breakout lacked conviction. Within two sessions, ITC slipped back to Rs.447, trapping traders who bought the breakout. Without volume confirmation, the breakout was unreliable.

Candlestick patterns gain or lose significance based on the volume behind them. A pattern that forms on high volume is far more trustworthy than the same pattern on thin volume.

Imagine MARUTI forms a bullish engulfing at a strong support of Rs.10,800. If the volume on that engulfing candle is 1.5x the 10-day average, you have a high-quality setup: the pattern says reversal, the support level gives you a stoploss, and the volume confirms participation. All three boxes are checked.

But the same bullish engulfing on volume that is half the average? The pattern is there, the support is there, but the conviction is missing. You might still take the trade, but with reduced position size and tighter expectations.

We have been building a practical trading checklist throughout this module. In earlier chapters, we added candlestick pattern recognition and support/resistance confirmation. Now we add the third filter: volume validation.

From this point forward, every potential trade must pass all three filters. If a stock shows a beautiful hammer at strong support but volume is below average, it scores only 2 out of 3 — you either skip the trade or reduce your position size significantly.

• A setup that passes all 3 checks deserves full position sizing (1-2% risk of total capital).
• A setup that passes only 2 checks deserves a reduced position (0.5% risk or less).
• A setup that fails 2 or more checks should be avoided entirely.