The importance of Volume Analysis

In a stock market, the daily transaction value is measured. It is reflected in the "volume bar" which usually take place below the candlestick chart. When the bar is high, meaning the market is enthusiast about the stock but when it was low, the market is not really interested.

However, there are other function of volume bar:

1. Detect a reversal
Market moves both ways, up and down. There will be a particular point where the price reverse from/to uptrend to/from downtrend. When the volume and the price decrease accordingly, it usually indicate incoming downtrend.

2. Measure market strength
When the volume is high, as i said, it measures market enthusiasm. And when market enthusiasm is high followed by daily increase in volume, it will result in a stronger trend (uptrend).

3. Breakout Confirmation
Most of traders would be familiar with "B-o-B : Buy on Breakout". However, it is often that we face a "false breakout". One of the way to minimize the risk is to pay attention at the volume, as more volume reduce the chance of false breakout.

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