What is trading volume?
Trading volume is the number of units of an asset that have been bought and sold over a defined time period. Unlike most indicators, which are derived purely from price, volume directly shows how much real capital is actually participating in the market, which is why it's considered one of the most honest pieces of data available in technical analysis.
How it's calculated
Volume is derived in raw form from the total number of trades executed within each candle, and it's usually displayed as vertical bars below the price chart; the green or red color of the bars often also shows whether that volume occurred on a bullish or bearish candle.
How to read the chart
Rising volume alongside a price move signals the validity and strength of that move; but if price makes a large move while volume is low, that move carries less credibility and is more likely to reverse. High volume near a price top or bottom can also signal the entry or exit of major players.
Trading signals
A break of an important support or resistance level, when accompanied by a significant rise in volume, is more valid than a breakout that happens on low volume. A steady decline in volume throughout a trend can also be a warning that the trend is weakening and may be nearing its end.
Strengths and limitations
Trading volume is objective, hard-to-manipulate data (on centralized, reputable markets), but on its own it doesn't establish direction; high volume can be meaningful on either a bullish or a bearish candle, so it should always be read alongside price, never in isolation.
Practical tip
Before trusting any break of an important price level, always compare that candle's volume against the average volume of recent candles; a breakout whose volume is clearly above average carries far more credibility.