Volume Spikes & Blowoffs
- Volume Defined
- Volume Spikes & Blow-offs
Extreme increases in volume along with extreme rises or falls in price can sometimes be interpeted opposite to regular volume analysis:
- Sharp increases in price and sharp increases in volume can mean bulls have been exhausted, all buyers have bought and there is no one else but sellers; the result is bearish.
- Sharp decreases in price and sharp increases in volume can mean that everyone that wanted to get out of the stock or future has; therefore, there are only buyers left - bullish sign.
The chart below of eBay (EBAY) stock illustrates a volume spike, defined as at least two times the average volume:
Volume extremes may occur at bottoms as well, which is shown below in the chart of the Nasdaq 100 QQQQ's:
A strong understanding of volume is a good addition to price analysis skills. Being able to see when price increases or decreases have firm support or knowing when either buyers or sellers have been exhausted might prove useful when trading. Another way of visualizing volume is Volume Rate of Change (see: Volume Rate of Change) and the Volume Oscillator (see: Volume Oscillator).
The information above is for informational and entertainment purposes only and does not constitute trading advice or a solicitation to buy or sell any stock, option, future, commodity, or forex product. Past performance is not necessarily an indication of future performance. Trading is inherently risky. OnlineTradingConcepts.com shall not be liable for any special or consequential damages that result from the use of or the inability to use, the materials and information provided by this site. See full disclaimer.