Volume is the number of shares traded in a given period — and it's the most underrated indicator in a retail trader's toolkit. Price tells you what happened. Volume tells you who believed in the move. A stock can rise 5% on light volume and it means almost nothing — a few buyers pushed price up in a thin market. But a stock rising 5% on three times its average volume? That's institutional conviction. Hedge funds, mutual funds, and pension funds moving real money. Volume is the lie detector of the stock market — it separates genuine moves from fakeouts.

The most important volume signal is confirmation. When price moves in one direction and volume increases, the move is confirmed — real money supports the trend. When price moves but volume decreases, be suspicious. A stock making new highs on declining volume is a classic warning sign — it means fewer and fewer buyers are willing to pay up. This is called a 'volume divergence' and it often precedes a reversal. Similarly, if a stock is selling off but volume is declining, the selling pressure is exhausting itself and a bounce may be coming. Always ask: does the volume confirm the price action?

Volume spikes deserve special attention. An unusual volume day — two, three, or five times the average daily volume — signals that something significant is happening. It could be institutional accumulation (big money quietly buying), distribution (big money quietly selling), or a reaction to news (earnings, upgrades, sector events). The On-Balance Volume (OBV) indicator keeps a running total that adds volume on up days and subtracts volume on down days. When OBV is trending up while price is flat, institutions are accumulating shares before a breakout. When OBV is trending down while price holds steady, institutions are distributing — a breakdown is likely coming.

Volume is also critical at support and resistance levels. When a stock approaches support on declining volume, there's a good chance the level holds — selling is drying up. When a stock breaks through resistance on massive volume, the breakout is legit. The Volume Weighted Average Price (VWAP) is another key tool — it's the average price weighted by volume throughout the day, and it's the benchmark institutional traders use. If a stock is trading above VWAP, buyers are in control. Below VWAP, sellers dominate. Day traders live and die by VWAP. Combine volume analysis with price action, and you'll see the market with a clarity that most retail traders never achieve.