Understanding trading volume is a foundational skill for any investor stepping into the financial markets. Often said in trading circles: “Beginners watch price; experts watch volume,” and “Volume leads price.” These adages highlight the critical role that volume plays in confirming trends, identifying reversals, and gauging market sentiment.
In this guide, we’ll walk you through everything you need to know about volume—from its basic definition to real-world applications—so you can make more informed investment decisions.
What Is Trading Volume?
Trading volume refers to the total number of shares, contracts, or units traded within a specific time period. It reflects the level of market activity and capital flow. High volume indicates strong interest and participation, while low volume suggests apathy or uncertainty among traders.
When analyzed alongside price movements, volume provides deeper insights into market dynamics. For example:
- A rising price accompanied by increasing volume signals strong buying pressure.
- A falling price with high volume may indicate panic selling or distribution by large investors.
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By monitoring volume trends, investors can assess market momentum, confirm breakout validity, and even anticipate potential reversals before they appear on the price chart.
Volume Units Across Markets
Different financial instruments use different units to measure volume. Understanding these distinctions is crucial for accurate analysis:
- Stocks & ETFs:
In the Taiwan stock market, volume is measured in "sheets" (張), where one sheet equals 1,000 shares. For fractional shares (零股), the unit is "shares" (股). International markets typically report volume in individual shares. - Futures Contracts:
Traded in "lots" (口). One standard stock futures lot usually represents 2,000 shares (2 sheets), while mini-futures may represent only 100 shares. - Market or Individual Turnover:
Often expressed in monetary terms (e.g., NT$10 billion in daily turnover), which combines both price and volume.
Knowing these units helps you interpret data correctly across platforms and avoid confusion when comparing domestic and international assets.
How to View Volume in the Taiwan Stock Market
Most trading platforms display volume as a series of vertical bars beneath the price chart—commonly seen under candlestick (K-line) charts. Each bar represents the total volume traded during that period (daily, hourly, weekly, etc.).
The taller the bar, the higher the volume. For instance, in the weekly chart of TSMC (2330), a highlighted bar from August 5–9, 2024, shows a weekly volume of 146,961 sheets—indicating significant investor activity during that week.
This visual representation allows traders to quickly identify periods of heightened interest or accumulation.
What Do Volume Bar Colors Mean?
In the Taiwan market, color coding aligns with price movement:
- Red bars: The closing price is higher than the previous period → bullish sentiment.
- Green bars: The closing price is lower → bearish sentiment.
- Yellow or gray bars: No net change (flat close).
These colors help traders instantly gauge whether increased volume supports upward momentum or reflects aggressive selling.
What Counts as High Volume?
There’s no universal threshold for “high” volume—it must be evaluated relative to historical averages. A common benchmark is comparing current volume to the 5-day (MA5) or 10-day (MA10) moving average.
If today’s volume exceeds the average by 2–3 times, it’s considered an "explosion" in volume (爆量)—a strong signal worth investigating.
For example, WAN HAI (2615) had an average daily volume of around 13,000 sheets between late August and early September 2024. On September 24, 2024, volume surged past 100,000 sheets—over seven times higher—coinciding with a sharp rally to the daily limit-up. This was a classic case of high-volume breakout, suggesting strong institutional participation.
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How Volume Changes Predict Price Movements
Volume is often called a leading indicator because it tends to shift before major price moves. Here are six key patterns linking volume and price behavior:
1. Price Up, Volume Up
A healthy uptrend. Rising prices with expanding volume show strong demand and confidence. Likely continuation.
2. Price Up, Volume Down
Warning sign. The rally lacks backing from new buyers—could signal weakening momentum or a potential reversal.
3. Price Down, Volume Up
Intense selling pressure. Bearish dominance. However, after a prolonged decline, a large-volume drop might mark capitulation—a possible bottom forming.
4. Price Down, Volume Down
Sellers are stepping back. Decline may be losing steam, leading to consolidation or stabilization.
5. Price Flat, Volume Up
Sideways price with rising volume often means accumulation or distribution by big players. Watch for an imminent breakout.
6. Price Flat, Volume Down
Low interest. Market is indecisive. Expect range-bound trading until new catalysts emerge.
These patterns form the backbone of technical analysis and are widely used by professionals to time entries and exits.
Frequently Asked Questions (FAQ)
Q: Can volume alone predict stock prices?
A: Not reliably. While volume provides valuable clues about market sentiment, it should always be combined with other tools like moving averages, support/resistance levels, and candlestick patterns for better accuracy.
Q: Does high volume always mean a good entry point?
A: Not necessarily. High volume confirms interest—but not direction. A spike during a sharp drop could mean panic selling rather than accumulation. Context matters.
Q: How do I calculate average daily volume?
A: Most platforms automatically compute MA5 and MA10 volume lines. You can also manually sum up the last 5 or 10 days’ volume and divide by the number of days.
Q: Is low volume dangerous for traders?
A: Yes, especially in illiquid stocks. Low-volume markets suffer from wider spreads and slippage, making it harder to enter or exit positions smoothly.
Q: Can fake volume exist in stock markets?
A: In regulated exchanges like TWSE, manipulation is rare due to oversight. However, wash trading or pump-and-dump schemes can occur in less-transparent markets.
Q: Should I focus on volume or price more?
A: Start with price to understand trend direction; use volume to confirm strength. They work best together—like hearing and vision complementing each other.
Why Volume Matters for Every Investor
Volume isn’t just noise—it’s the heartbeat of the market. It reveals who’s in control: buyers or sellers. By learning to read volume patterns, beginners can move beyond guessing and start making data-driven decisions.
Whether you're analyzing a breakout attempt or assessing the strength of a downtrend, volume adds context that price alone cannot provide.
Moreover, combining volume analysis with other technical indicators—such as MACD, RSI, or Bollinger Bands—enhances predictive power and reduces false signals.
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Final Thoughts
Mastering volume interpretation is a rite of passage for every serious investor. From recognizing explosive moves to spotting early signs of trend exhaustion, understanding volume, price, and their interplay equips you with a significant edge in the market.
Start by observing volume bars beneath your charts, compare them with moving averages, and ask: Is this move supported by real money? Over time, you’ll develop an intuitive sense of market rhythm—one that separates casual traders from consistent performers.
Remember: Prices tell you what happened; volume tells you how much conviction was behind it.
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