Volume Price Analysis

Combining volume with price analysis reveals the true strength behind market moves. Smart money leaves footprints in volume patterns. [DEFINITION] Volume Price Analysis (VPA): A method of analyzing price movements in relation to trading volume to understand the dynamics between supply, demand, and price. ### The VPA Principles **Core concept:** Volume shows effort, price shows result. - High volume + big move = effort matched by result (genuine) - High volume + small move = effort not matched (absorption) - Low volume + big move = suspicious (lack of participation) - Low volume + small move = no interest [KEY] Professional money can't hide in volume. Large positions create volume patterns that reveal accumulation (buying) or distribution (selling). ### Accumulation Signs **Institutional buying (accumulation):** - High volume on up days - Lower volume on down days - Price making higher lows - Dips bought aggressively [EXAMPLE] Stock drops 3% on 500K volume. Next day rises 1% on 1.5M volume. The buying day had 3x the volume of the selling day—accumulation pattern. ### Distribution Signs **Institutional selling (distribution):** - High volume on down days - Lower volume on up days - Price making lower highs - Rallies sold into [TIP] Distribution often occurs while price is still near highs. The chart looks fine, but volume reveals selling pressure. ### Volume Spread Analysis Patterns **No Demand:** Narrow range up-bar on low volume. Weak bounce, likely to fail. **No Supply:** Narrow range down-bar on low volume. Selling exhausted, may bounce. **Stopping Volume:** High volume bar that halts a decline. Often marks a bottom. **Climax Volume:** Extremely high volume after extended move. Often signals reversal. [WARNING] Volume analysis requires practice. Context matters enormously—the same volume pattern can mean different things at different chart locations. ### On-Balance Volume (OBV) [DEFINITION] OBV: A cumulative indicator adding volume on up days and subtracting on down days, showing the running total of buying vs. selling pressure. **OBV signals:** - OBV rising while price rises = confirmed uptrend - OBV rising while price flat = accumulation (bullish) - OBV falling while price rising = distribution (bearish divergence) [EXERCISE] A stock rises 5% on 2 million shares volume. The next day it falls 3% on 4 million shares volume. What does this volume pattern suggest? |ANSWER| The selling day had twice the volume of the buying day despite a smaller percentage move. This is distribution—more effort (volume) going into selling than buying. Bearish signal. [SCENARIO] You're watching a stock at all-time highs. Price has barely moved for two weeks, but daily volume has been 3x normal average. The daily candles show tight ranges—no big moves up or down. What might be happening? This looks like distribution. Professional sellers are unloading shares, but buyers are absorbing them (keeping price stable). The high volume with no price advance is a warning sign. Once supply overwhelms demand, price could drop sharply. Consider taking profits or tightening stops.