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Introduction

Welcome to the first module of the most comprehensive real-world guide to

Volume Analysis. Volume is a simple yet powerful tool that can significantly
enhance your trading strategy. Whether you're a seasoned trader looking to
revisit essential concepts or a newcomer eager to understand the
fundamentals, this tutorial is designed for you.

This module will explore everything you need to master volume analysis. We'll
start by defining volume and why it matters in trading. Then, we'll dive into
interpreting volume data and discuss the tools you can use to incorporate
volume analysis into your trading practice. Finally, we'll cover actionable
trading setups based on volume analysis, providing you with practical
techniques to apply in your trades.

This effort aims to help veteran traders refine their knowledge and assist new
traders in becoming proficient in volume analysis. Let's embark on this journey
to unlock the full potential of volume in your trading endeavours.
 Definition of Terms

1. Volume: The total quantity of shares or contracts traded for a specific security or market
during a given period. Volume measures the activity and liquidity of the security, providing
insights into market strength or weakness.
2. Average Volume: The average number of shares or contracts traded over a specified
period, typically calculated over 20 trading days. It helps traders identify trends and
potential reversals by comparing current volume against the historical average.
3. High Volume: A trading period where the volume of trades is significantly higher than
the average volume. High volume often indicates strong investor interest and can confirm
the strength of a price move or signal a potential reversal.
4. Point of Control (PoC): The price level at which the highest volume of trades occurred
over a specified period. The PoC is used in volume profile analysis to identify significant
support and resistance levels and to understand market sentiment.
5. Liquidation: The process of closing out an existing position in a financial asset by selling it
off. Liquidation can occur voluntarily, such as when a trader decides to take profits or cut
losses, or involuntarily, such as in a margin call where the broker forces the sale to cover a
loan.
6. Cumulative Volume: The total trading volume summed over a specific period. For
example, if the volumes for three consecutive hours are 100, 150, and 200, the cumulative
volume is 450.
7. Smart Money: Refers to institutional investors who have significant capital and better
information. High volume often indicates smart money interest, while low volume usually
indicates retail investor activity.
Module 1: Introduction to Volume
1.1 What is Volume?
Volume refers to the amount of an asset traded over a fixed period. Each purchase and sale of one
unit is counted as a volume of one unit. For example, if the volume on Binance for BTC is 403 million
USD, it means there has been a purchase and sale of 403 million USD worth of BTC.

It is worth noting that many authors do not fully comprehend volume analysis, and even in
several well-regarded books, it is often described inaccurately. The figure above is from one
of the most popular books for new traders, showing this is a common issue.

1.2 Understanding Cumulative Volume

Many authors misunderstand the concept of cumulative volume. To clarify, cumulative volume is
calculated by summing up the trading volume over a specific period. Here's an example to explain
how it works correctly:

Example:
Time Period Volume

1st hour 100

2nd hour 150

3rd hour 200

Cumulative Volume at the end of 3rd hour = 100 + 150 + 200 = 450
1.3 Importance of Volume in Trading
On its own, the volume has limited use. For instance, knowing that Bitcoin's volume was 1 billion
USD in the last 24 hours doesn't provide actionable insights. However, when combined with previous
volumes and price actions, it becomes a powerful tool for making trading decisions.

1.4 Low Volume vs. High Volume

Low and high volumes are relative terms. Low volume refers to a volume lower than the average
volume, while high volume refers to a volume higher than the average volume.

Example:

● If the average volume of a stock is 500 units per day, a day with 300 units traded would be
considered low volume.
● Conversely, a day with 700 units traded would be considered high volume.

1.5 Average Volume

Average volume refers to the moving average of the volume calculated based on previous sessions.
This average can be set for any time period, with the default on most trading platforms being 20
periods. However, some traders prefer using 14 periods for more sensitivity.

Each volume bar shows the respective volume in that time period. So if a candle represents
a 5-minute interval the bar will represent total volume (in either USD terms or number of
coins) over that 5-minute interval.

How to view/change average volume on TradingView:

 1. Open the chart of your asset.
2. Click on the 'Indicators' button.
3. Select 'Moving Average Volume' and set the desired period (e.g., 14 or 20).

1.6 Importance of Volume Study

Studying volume is crucial because an increase in volume indicates increased interest and activity
from institutional investors, often referred to as 'smart money.' These are holders of significant
capital and better information.

Smart Money Indicators:

● High volume levels often indicate areas of interest where smart money is likely buying or
selling.
● Low volume levels generally indicate retail investor activity, which may signify weak hands
and uncertainty.

Module 2: Effects of Volume on Price

Understanding the effects of volume on price can help identify potential trade entries and exits.
Note that these are observations and not rules. It's a guidance note which can be used but
this is not always 100% True- just my observations.

Here's a cheat sheet to illustrate:

Scenario 1: High Volume on Price Increase

● Indicates strong buying interest.

● Potential entry point for long positions.

Scenario 2: High Volume on Price Decrease

● Indicates strong selling interest.

● Potential entry point for short positions.

Scenario 3: Low Volume on Price Increase

● Indicates weak buying interest.

● Caution advised for long positions.

Scenario 4: Low Volume on Price Decrease

● Indicates weak selling interest.

● Caution advised for short positions.

In subsequent modules, we will delve deeper into these scenarios and discuss strategies for trading
based on volume analysis.
It's generally believed that smart money has access to better analysis and more info, hence the
levels that see the higher volume is regarded as an area of interest.

Smart money moves in to buy/sell at a certain level, increasing the volume substantially. A lower
level of volume sees buys/sells only from the retail investors with little capital, showcasing a period
of weak hands buying and a time of uncertainty. Conclusion- Higher volume= Smart money with
more info and funds buying, hence it's an area of interest.

Module 3: Practical Applications

The effects of Volume on price can be understood with the help of the following cheat sheet. We will
discuss all 4 situations in detail. We will also study where we can Enter a trade and increase our
positions after we have discussed all the 4 scenarios.

These are just observations and will not play out 100% of the time. While these are useful to
keep in mind for beginners, it is important to note that a full understanding of price and
volume behaviour will be achieved after learning all of the other volume and profiling tools
we cover and once a more complete understanding of orderflow is achieved.

3.1 Price increases with increasing volume

The volume here acts as a support to the uptrend. This kind of uptrend is said to be confirmed by
volume. In the chart below, see how in an uptrend, the volume too incrementally increases,
confirming an uptrend with volume expansion.

3.2 Price increases with decreasing volume

Following a down-trend, there is a slight uptrend. Many traders would assume this to be a reversal.
However, this is accompanied by decreasing volume. This proves it to be just a correction and not a
reversal. Hence, increase in price with a decrease in volume points towards an uptrend not
supported by volume. It isn't safe to long this uptrend. This kind of price volume movement denotes
a correction in a down-trend rather than a reversal.
3.3 Price decreases with increasing volume
When price decreases with increasing volume, the volume here confirms the downtrend. The chart
below denotes a short entry and an addition to position upon further break of support. This is a
multi-confirmation entry. When the sudden increase in volume leads to a downtrend AND the
support zone is broken, this leads to a High volume as well as High momentum entry. High
momentum short= Previous Support broken. Also see how the position is increased upon breaking of
a further support.
3.4 Price decreases with decreasing volume
This decrease in price is not confirmed by volume and hence can be regarded as a correction in
uptrend and not confirmation. Notice how the volume decreases upon down-trend and hence this
isn't a reversal for a short entry. The bull market of 2017 saw an ATH of 19700. However, the ATH
was not accompanied with equally high volume. Notice how the volume at ATH is lower than the
average volume. The Volume at ATH is equal to what it was at 18000 levels. It was a warning for
MANY for the upcoming dump.
 Module 4: Trade Entries
4.1 Trade entries at Support
Support is confirmed with a volume expansion. A long entry can be taken here which is generally a
high probability trade. To be more sure, you can enter upon break-out from a local swing high as in
this case.
4.2 Long entry at Resistance
Notice how there is a sudden volume expansion at the resistance, with the volume rising
substantially above the average volume. Here we enter after volume expansion AND re-test for a
High probability trade. The short entries can be entered in a similar fashion, it has also been
illustrated in case no. 3.

Hence, increase in volume confirms the trend direction of the trend. It is important to relate the
volume to the average volume.
Conclusion

As we conclude Tutorial 1 for Volume Analysis, it's important to recognize the

impact that volume analysis can have on your trading. Many of my most
successful trades have been based solely on volume analysis. This was my best
attempt at introducing the basic concepts regarding volume analysis to all of
you.

In the upcoming tutorials, we will delve deeper into advanced topics such as
cumulative volume divergences, On-Balance Volume (OBV), pattern volume
breakouts, volume profile, and market profile.

Take the time to study this material thoroughly. Mastering volume analysis can
significantly enhance your trading decisions and outcomes. All the best on your
trading journey.

Love,
EmperorBTC