Volume-Price Relationship - Reveals the market forces behind price changes.

Volume-price relationship: Core analysis tool in the stock market

The relationship between price and volume is one of the important foundations of stock technical analysis, used to reveal the market forces behind price movements. By analyzing the interaction between volume and price, investors can better determine the authenticity of market trends and possible future directions.


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1. The basic principles of the relationship between price and volume

(1) The significance of volume

Volume represents the degree of activity of transactions between buyers and sellers in the market, and is an important reflection of market sentiment:

High volume: usually indicates a high degree of market agreement with the current price trend, which may be a signal of trend continuation.

Low volume: usually reflects a lack of interest in the current price in the market, which may indicate trend exhaustion or increased wait-and-see sentiment.


(2) The interaction between price and volume

The core of the volume-price relationship lies in whether the trading volume supports the price movement.

Volume Increase, Price Rise: When prices rise, trading volume increases simultaneously, indicating strong buying interest, and the trend may continue.

Volume Decrease, Price Fall: When prices fall, decreasing trading volume suggests reduced selling pressure, which may be a normal adjustment.

Volume Increase, Price Fall: When prices decline and trading volume rises, it indicates increased selling pressure, possibly a signal of trend reversal.

Volume Decrease, Price Rise: If prices rise but trading volume decreases, it suggests insufficient upward momentum, possibly indicating a risk of false breakout.



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2. Application of Volume-Price Relationship

(1) Trend Confirmation

1. The relationship between volume and price in an uptrend:

Healthy trend: A rise in stock prices accompanied by an increase in volume indicates active inflow of funds.

Be cautious: Gradual shrinking of volume during an uptrend may indicate an upcoming trend reversal.



2. The relationship between volume and price in a downtrend:

Healthy adjustment: A decrease in stock prices accompanied by a decrease in volume indicates limited selling pressure in the market.

Weak trend reversal: A decrease in stock prices accompanied by an increase in volume indicates intensified selling pressure, which may accelerate the decline.




(2) Key point analysis

1. Breakthrough:

A breakout with increased Volume (such as important Resistance or Support levels) is usually a true breakout.

If a breakout is accompanied by low Volume, beware of the possibility of a false breakout.



2. Resistance and Support:

At key Support levels, if Volume increases, it indicates strong Bid and effective Support.

At key Resistance levels, if Volume increases but the stock price cannot break through, it indicates heavier selling pressure.




(3) Hot Sectors and Stock Selection

Sectors or individual Stocks with abnormally high Volume and rising stock prices often become market hotspots.

Observing the relationship between volume and price can help investors identify the direction of fund inflow.



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3. Common Patterns and Signals in the Relationship between Volume and Price

(1) Volume Expansion Pattern

1. Volume Expansion and Price Increase:

Stock price increases significantly with a notable increase in volume, usually indicating strong bullish sentiment, which is a buy signal.

If it occurs in the bottom area, it may be a trend reversal signal.



2. Volume Expansion and Price Decrease:

Stock price decreases significantly with a notable increase in volume, typically indicating market panic, which is a sell signal.

If it appears in the top area, it may be a signal of trend reversal.




(2) Shrinking volume pattern

1. Shrinkage and rise:

Stock price rises but volume decreases, which may indicate a rebound trend. It is necessary to observe if it breaks through key levels.



2. Shrinking and falling:

Stock price falls but volume decreases, indicating limited selling pressure in the market, which may be a normal adjustment.




(3) Abnormal volume-price signals

1. Enormous volume and price:

Stock prices with extremely high trading volume at high levels are usually a signal of a market top.



2. Price and volume at low levels:

Stock prices with extremely low trading volume at low levels usually indicate a strong market wait-and-see sentiment, which may signal the formation of a bottom.





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4. Limitations of volume-price relationship:

1. Possibility of false signals:

Increased trading volume does not necessarily lead to sustained price increases or decreases, and analysis should be combined with other technical indicators and market conditions.



2. Volume-price characteristics in different market situations:

In a bull market, the linkage between volume and price is more obvious.

In a bear market or sideways market, the relationship between volume and price may be more confusing.



3. A single indicator is not sufficient for decision-making:

The volume-price relationship is an important tool for analysis, but needs to be used in conjunction with trendlines, technical patterns, etc.





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5. Areas that retail investors need to pay attention to

1. Pay attention to the volume and price performance at key positions:

When breaking through or testing support, observe if the volume cooperates.



2. Avoid emotional trading:

Do not solely rely on trading volume to chase rises and falls, but need to combine overall trends and fundamental analysis.



3. Distinguish different market environments:

In a strong market, a volume increase indicates a more reliable uptrend.

In a weak market, a volume decrease may accelerate the downtrend.





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6. Summary: How to make money using the relationship between volume and price?

The volume and price relationship reveals the true intentions of market participants and is one of the core tools of technical analysis. The key points are as follows:

Go with the trend: Increasing volume and rising prices are signs of a healthy trend, suitable for adding positions in the direction of the trend.

Beware of false breakouts: Be cautious of low volume breakouts, as it is not advisable to chase after highs easily.

Observe turning points: When high-volume stagnation occurs at highs or low-volume rises at lows, adjust positions promptly.


The relationship between volume and price is not the sole determining factor, but rather a combination with technical patterns, trend analysis, and fundamental analysis to form an effective investment strategy. Only through comprehensive analysis can market opportunities be more accurately captured, and trading success rates be improved.