Not using volume in your trading is like placing a trade blindfolded. You are not seeing the whole picture and without looking at volume you don’t know if there is strong sentiment to the move in the price. You may see the price surge but if the volume is low it could be a false breakout. Volume is so important because it will tell you if there are large amounts of money going into the asset at that price. This is what leads to a stock making a large move. You need to use volume in conjunction with price action. Volume alone is not enough to place a trade.
There are indicators that can help you read volume and see where people have placed large amounts of trades at certain prices. Here are 3 volume indicators that will help you identify and read volume.
Volume profile is an indicator that will overlay over your chart and show you volume and different price levels so you can see what prices people were placing large trades at. This can be helpful because it allows you to see where certain support or resistance levels are. It will show horizontal bars at important price levels indicating where volume is directly on your chart.
Here is an example of Volume Profile.
VWAP (Volume Weighted Average Price)
Vwap is a very popular indicator used by a lot of daytraders. Vwap is the average of the price weighted by total trading volume. Vwap is calculated for each trading day and starts over the next day. It uses intraday data. Vwap can be used as support and resistance and can also show when the trend is over extended if the price has moved far out from the Vwap line
Here is an example of VWAP.
On Balance Volume
On Balance Volume or OBV shows the flow of volume. It takes the volume on up days and subtracts it from the volume on down days. It shows you a running total of positive and negative volume. You can look for divergences with this indicator or you may see volume rising but the price staying the same which could indicate a large move is coming. You can also use it to confirm a trend.
Here is an example of On Balance Volume.