Volume in a pullback
Intermediate · 2 min
When a rising share dips, how fast its volume shrinks is read as a sign of how the dip will end.
You own a share that has been rising, and it starts to slip back. Is this a pause, or the top? Ground volume has a second use here. It is not about finding a bottom. It is about reading a dip inside a rise.
Volume that dries up
Take the heaviest volume day of the rise as the peak. If, as the price dips, daily volume falls quickly to 30% of that peak or less, the usual reading is that the dip will end soon. Few people want to sell at these prices, and the rise may carry on.
Volume that will not shrink
If the price dips but volume stays high, people disagree about the share. Plenty are selling into the dip. The usual reading is that large holders may be cutting their positions, or selling out. The dip is then likely to go deeper and last longer. It may even turn out to be the end of the trend.
Two dips in a share that rose from ₹400 to ₹520
- Heaviest day of the rise
- 10,00,000 shares, near ₹520
- Dip A: price
- slips to ₹490
- Dip A: volume
- 2,50,000 a day, 25% of the peak
- Dip A: the usual reading
- selling has dried up, the dip may be ending
- Dip B: price
- slips to ₹490
- Dip B: volume
- 7,00,000 a day, 70% of the peak
- Dip B: the usual reading
- heavy selling, be ready for a deeper fall
The price is the same in both dips. The only difference is how many people took part in the fall, and that is all this rule reads.
Share this lesson
Works with
- Key points and breakouts — Some prices matter more than the rest, and a share that clears one is telling you something.
- Trends — A share in a trend keeps making higher highs, or lower lows — and most of the time it is doing neither.
- Trading with a trend — Where to get in, where to get out, and what the method cannot promise.
- Stop losses — The price you decide, before you buy, at which you will admit you were wrong.
- The formula that only works backwards — A projection drawn from two past prices is a ruler, not a forecast.