Volume

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Using volume is a common trading strategy that helps investors and traders identify key trends and levels of support and resistance in the markets. Volume can be used to measure market activity, determine liquidity of an asset, confirm trend direction, and identify potential areas of trend reversal.

Volume can also be used to identify momentum shifts as well as major price movements that may suggest a potential breakout or breakdown in the markets. By studying how volume behaves around major price movements, traders can often gain insight into potential future price changes. For example, if a stock experiences a sudden spike in volume preceding or coinciding with a sharp move in price, this could signify the start of a new trend. Conversely, if strong volume precedes a decline in price, this could indicate that sellers are becoming more aggressive and the current uptrend may soon end.

Another way traders use volume is to identify divergences between price action and underlying indicators such as moving averages or oscillators. When prices are trending higher but you see negative divergence on the volume chart (with decreasing or lower than average volumes) it could signal that the current uptrend may not have enough strength to continue any further. Similarly, when prices are trending lower but there is positive divergence on the volume chart (increasing higher than average volumes) this could be an indication that buyers are starting to become more aggressive which could lead to an eventual reversal in prices.

Traders also use volume as an indicator for possible exhaustion points within trends by measuring relative highs or lows of both price AND volume over certain time periods. By doing this they can gauge whether there is enough buying/selling pressure present for either trend continuation or reversal from current levels. For example, if you see relatively high highs in both price AND volume during an uptrend then it could indicate bullish strength with buyers willing to buy at increasingly higher prices - potentially suggesting further upside movement ahead.

Overall, understanding and utilizing volume data can provide valuable insight into many aspects of market activity, including whether there is sufficient demand / supply dynamic present for either continuation or reversal of current trends. This type of technical analysis allows traders to evaluate market sentiment quicker than relying solely on chart patterns or other forms of analysis alone; thus making it one of the most important tools available when it comes to trading success.

Simplified 

In trading, volume is often represented on charts and used as a technical indicator to help traders make decisions about buying and selling securities. Volume is a measure of the number of shares or contracts of a security that have been traded during a specified period of time.

There are several ways to use volume in chart analysis:

Confirming price trends: A rising volume during a price increase can indicate a strong uptrend, while declining volume during a price decline can suggest a weakening downtrend.

Spotting divergences: If the volume does not confirm a price trend, it can indicate a potential trend reversal. For example, if the price is making new highs but the volume is declining, it can suggest a lack of buying pressure and a potential reversal to the downside.

Identifying breakouts: Increased volume during a price breakout can indicate a strong move and increase the chances of a sustained trend.

Measuring supply and demand: High volume during a price rise can indicate strong buying demand, while high volume during a price decline can indicate strong selling pressure.

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