Trading Volumes on the Exchange: Why This Is an Important Indicator

Comprehensive Analysis of Trading Volumes in Financial Markets

Key Definitions and Significance of Trading Volume

What is Trading Volume?

Trading volume is a quantitative measure that reflects the number of trades or the amount of purchased/sold assets over a specified period: stocks, contracts, lots, currency units. On stock and futures markets, exchanges accumulate this data and provide statistics on total turnover for any time interval. Each trade involves two parties—a seller and a buyer—thus, volume characterizes market activity across the instrument.

Types of Volume Calculation

• Exchange Volume: the number of shares or contracts that have changed ownership.
• Quantitative Volume: the total number of trades over a period, important for assessing traders' activity.
• Tick Volume: the number of minor price changes, relevant for Forex as a relative indicator.

Volumes can be daily, weekly, by the minute, monthly, etc. It is essential to analyze not just the absolute value but the dynamics of change compared to previous periods—spikes and drops in volume often indicate turning points in the market.

Volume, Liquidity, and Volatility

The Relationship Between Volume and Liquidity

High trading volume on the exchange is a key sign of an asset's liquidity, meaning the ability to quickly buy or sell with minimal price change. For example, a stock with a daily turnover of several million shares is less susceptible to sharp fluctuations; its price reacts steadily even to large orders. Conversely, stocks with low volume exhibit wider spreads, slippage, and a risk of sudden price changes even due to small orders.

Volatility and Volume

Volume dynamics are often accompanied by increasing volatility. As the number of trades rises, the rate of price changes accelerates—this is particularly noticeable during news releases, trading session openings, and the publication of crucial economic data. The collective behavior of traders at these moments triggers swift and substantial market movements, while their absence signifies a period of calm or consolidation.

Spread, Liquidity, and the Role of Volume

The width of the spread (the difference between the best bid and ask price) narrows as volume increases: in liquid securities, trades are executed more quickly, and quotes move optimally.

Volume as an Indicator of Trend and Reversal

Trend Movements, Change of Trend, and Signal Confirmation

One of the key rules of technical analysis is that a price movement confirmed by high volume is considered reliable and stable.

• If a price increase/decrease occurs on sharply rising volume, this signals support for the trend by active participants.
• If significant price movement is accompanied by low volume, this indicates weakness in the trend or a potential false breakout.

How Volume Confirms Reversals

Before significant reversals, there is often a spike in volume: traders massively take profits, and large players reposition assets. For example, at the end of a trend, the market enters a phase of active trading—classic cases include 1929, 2008, and modern declines/sell-offs, where volume spikes serve as confirmation of a turning point.

Volume in Breakouts and the Risk of False Breakouts

The strength of a breakout is determined by volume: if a support or resistance level is breached on high volume, the trend is likely to continue. If the volume does not confirm the breakout, it may be a false move—the price can quickly retrace.

Volume-Based Indicators

Main Volume Indicators

For convenient volume analysis, there are indicators that automate the calculation of trends, imbalances, and help identify non-trivial patterns.

• OBV (On Balance Volume): analyzes the accumulation of volume in the direction of price.
• VWAP: volume-weighted average price for the day, used to find fair value.
• Volume Profile: distribution of volume across the price range—points of maximum activity.
• VSA (Volume Spread Analysis): analyzes the relationship between candle size and the volume at that point.
• Delta, Cumulative Delta: the difference/accumulation between active buys and sells in a cluster.
• Footprint/Cluster Charts: display volume distribution within each price for a candle.

Each indicator carries its own utility—different logic is applied for trend-based strategies versus reversal detection.

Large Trades, Institutional Players, and Clusters

Large Orders and Institutional Participation

High volumes often indicate the activity of large players: institutional investors, hedge funds, market makers. The scale of orders and their effect on quotes allow the identification of moments when large capital begins to move.

Examples of Cluster Analysis (Footprint)

Cluster charts allow tracking large buys/sells at specific price levels—if a spike occurs within a price range, this indicates institutional activity: a potential trend reversal or the start of an impulse.

Retail vs Institutions: Differences by Volume

Ordinary traders (retail) cannot cause significant volume spikes—such movements are often linked to institutional players or algorithmic systems, especially during periods of economic or political events.

False Breakouts and Volume Traps for Market Participants

Why Volume Analysis Protects Against Traps

A breakout of a level without accompanying volume is one of the most common signs of a false signal. By analyzing spikes and drops, one can distinguish between genuine movements (confirmed by supply/demand) and manipulations arising from low liquidity.

Common Mistakes: Neglecting Volume Filtering

Many traders, especially beginners, ignore volume dynamics when making decisions, which leads to entering positions during false breakouts. Filtering based on volume is an essential element of professional trading.

Volume Traps and Whipsaw Situations

In consolidating or low liquidity phases, sharp spikes without long-term continuation frequently occur—volume whipsaw situations leading to losses without a confirmed trend.

Practical Cases from the Russian and Global Markets

Volume in History: What Past Trends Indicate

The crashes of 1929, 1987, and 2008, as well as declines in the MICEX, Bitcoin, and other global assets, have always been accompanied by record spikes in volume, confirming massive capital transfers and a change in market phase. Analysts note that rising volume often precedes key price movements. Modern technologies allow for the real-time tracking of large trades—such as on the MICEX during periods of sanction pressure or crises when volumes significantly increase, reflecting panic selling and buying.

Volume Spikes During Crises: What This Means for Traders

A series of raider attacks, mass sell-offs, and liquidity breakouts occur at extreme volumes. Practice shows that attentive analysis of volume changes can predict the onset of correction, collapse, or reversal.

Cryptocurrencies and Volume: Specifics of the New Market

On cryptocurrency exchanges, the notion of volume can be specific: some trading platforms publish only their own data, while others provide aggregated figures. During rallies and declines in supply/demand, volume spikes are a confirming sign of a trend, allowing for early detection of trend strength depletion.

Behavioral and Psychological Aspects of Volume

Herd Behavior and the Psychology of Volume Trading

Volume spikes are often driven by the herd reaction of market participants to news, technical signals, mass discussions, or sudden statements. Panic or euphoria causes prices to enter "overbought" or "oversold" territory on baseless volumes. Understanding the objectives of large players, their liquidity work, and distribution helps to discern the true motives driving market movements.

Errors and Traps for Beginners

Traders can fall into the trap of entering unjustified positions or exiting trades prematurely. Ignoring volume dynamics leads to participation in weak, unpromising movements—particularly in the absence of support from primary market participants.

Institutional Players and Their Influence on the Crowd

Large funds, banks, and market makers can direct the market using volume for manipulation or to protect their interests. Tracking large trades and correlating price movements with volume dynamics is a tool for understanding the overall picture.

Systematic Use of Volume in Trading Strategies

The Role of Volume in Buying, Selling, and Pattern Analysis

Volume is not only an indicator of trends but also a filter for patterns (reversal, breakout, consolidation). Professional analysis methods include comparing volume at different phases of market movement; searching for convergences/divergences; monitoring large trades; filtering false breakouts.

Building Trading Systems

Volume is used for:

• Confirming trade entry (for example, impulse movements with rising volume)
• Tracking exit from a position (volume tapering at extremes)
• Systematic analysis (volume indicators, cluster charts)
• Managing liquidity when working with options and futures

Conclusion: Why Trading Volume is a Key Market Indicator

High trading volume forms the foundation of liquidity, fairness, and transparency in any market—stocks, derivatives, currencies, or crypto-assets. Analyzing this parameter allows one to uncover the true intentions of participants, market sentiment, and the strategy of large players.

A qualitative volume analysis:

• Precedes price and trend movement
• Protects against false breakouts and manipulations
• Filters risky market moments
• Enhances the effectiveness of trade entries and exits

For the Russian trader and investor, the proper use of volume is the key to working with reliable signals, capital protection, and increased profits in any market conditions.

Trading volume is a universal marker of the market's condition, an indicator of price movement strength, and a crucial criterion for decision-making for both novices and professionals. A conscious, systematic approach to volume analysis aids in acting effectively, avoiding traps, and staying a step ahead of the majority of market participants.