Understanding Volume Indicators - Part 2

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Hello everyone, hope you all are doing good? I'm back with the Part 2 of this amazing series, Understanding Volume Indicators. If you haven't read the Part 1, I strongly suggest you that by clicking here. In today's article, I will be looking at he link between Volume and Trend and How to use volume to predict a trend reversal and how to use the volume to have a signal confirmation.


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The link between volume and trend, is that, volume indicates if a trend is strong or not. If the volume is high and rising, that indicates a strong trend.

If volume is high and rising, it indicates either a strong bullish trend or a strong bearish trend, hence, volume greatly concerns about the trend strength.


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As you can clearly see from the image above, that they were two cases when volume was high, we saw bullish trend and also other two cases when volume was high, we saw a bearish trend. Hence, the link between volume and trend, is the indication of trend strength. Whenever there is a high volume, there will either be a bullish or bearish trend.


How to use volume to predict a trend reversal?


It is quite easy to predict a trend reversal when using the volume indicator, as you can do it through divergence. Divergence occurs when the price movement and volume are doing the direct opposite. When price is rising and volume is decreasing, it is an indication of a trend reversal, because the next time, there is a very significant increase in the volume, a trend reversal will occur.


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As you can see from the TRX/USDT trade chart above, a divergence occurred. The price was increasing and the volume was decreasing, and when there was a significant increase in the volume, the price started decreasing, hence, the occurrence of a trend reversal.

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How to use the volume to have a signal confirmation?

We can use volume to have a signal confirmation quite easily, to know if there will be a resistance breakout or support breakout.

Resistance Breakout


To confirm a resistance breakout using volume, you will first indicate your resistance levels and once you see the price reaching the resistance levels and the volume is also very high, that's a confirmation of a resistance breakout.


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As you can see from the image above, there was a high volume at the resistance level, which indicates a breakout was about to occur.


Support Breakout


It is quite similar to resistance breakout. To confirm a support breakout using volume, you will first indicate your support level and once you see the price reaching the support levels and the volume is also very high, that's a confirmation of a support breakout.


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As you can see from the image above, there was a high volume at the support level, which indicates a breakout was about to occur.

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Thanks For Reading



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