Why Volume Matters
Volume is the number of shares traded in a given period. It’s often called the “truth serum” of the market because it reveals the conviction behind price movements. A price move on high volume is more significant than the same move on low volume.
Think of it this way: if a stock rises 5% on 10x normal volume, millions of traders and institutions agree the stock should be higher. If it rises 5% on half the normal volume, the move lacks conviction and is more likely to reverse.
Volume Confirms Price Movements
- Rising price + rising volume = Healthy uptrend. Buyers are enthusiastic. The trend is likely to continue.
- Rising price + falling volume = Warning sign. The price is going up, but fewer traders are participating. The move may be running out of steam.
- Falling price + rising volume = Strong selling pressure. A significant decline may be underway.
- Falling price + falling volume = The sell-off is losing momentum. A bounce may be near.
Volume Ratio
The volume ratio compares today’s volume to the stock’s average volume over a period (typically 20 or 50 days). Scanance shows the volume ratio (labeled “Vol Ratio”) for each signal.
- Vol Ratio < 0.5 — Very quiet day. Below-average interest.
- Vol Ratio 0.5–1.0 — Normal activity.
- Vol Ratio 1.0–1.5 — Above-average interest. Worth noting.
- Vol Ratio 1.5–2.0 — Significant interest. Strong moves often occur here.
- Vol Ratio > 2.0 — Institutional-level activity. Something important is happening.
Volume at Support and Resistance
Volume is especially informative at key levels:
- High volume bounce at support (MA150/MA200) — Strong signal. Big buyers are defending the level. This is the ideal buy signal.
- Low volume bounce at support — Weak signal. The bounce may not hold.
- High volume break below support — Strong breakdown. The support level has failed and the stock may decline further.
- Low volume break below support — Could be a false breakdown. The stock may recover.
Volume and Breakouts
When a stock breaks out of a range or through a resistance level, volume is your confirmation tool:
- Breakout + high volume = Confirmed breakout. The move is supported by institutional participation and is likely to continue.
- Breakout + low volume = Suspect breakout. Watch for a potential reversal back into the range.
Using Volume with Scanance Signals
When reviewing signals on Scanance, use the volume ratio to prioritize your trade ideas:
- Look at the Confirmed signals tab.
- Sort or scan for signals with volume ratio above 1.5.
- These are stocks where institutional-level activity is supporting the technical signal.
- Combine with MA150/MA200 proximity and RSI for the highest conviction setups.