Reading Volume with Price Action

A volume bar on its own means little. A volume bar compared with the bars before it, at a level that matters on the price chart, can tell you more than any other single piece of information.

Compare, do not count

"8.8 lakh" is not high or low by itself. It is high or low only against the candles around it. Two simple comparisons do most of the work:

• Against the last 10 to 20 candles. Is this bar clearly taller than the recent bars? A bar two or three times the recent average stands out.
• Against the same time on other days. Volume is naturally heavy in the first few candles after 09:15 and again near the close, and light around lunch. A tall bar at 09:20 is normal. The same bar at 13:00 is not.

Volume through a session

Here is one sample 5-minute session. Read the numbered points from left to right.

The breakout candle

A breakout is price closing beyond a level that held before: a range high, a previous day's high, a swing low. Volume helps you judge whether the close beyond that level has participation behind it.

What a healthy breakout looks like

• The breakout candle closes beyond the level, not just its wick.
• Its volume is clearly higher than the bars inside the range, often the highest in many candles.
• The next one to three candles hold beyond the level.
• Any pullback to the level comes on lower volume than the breakout.

The last point is the retest. A breakout followed by a low-volume pullback that holds the old range high is one of the cleaner price action setups. The level that was resistance is now acting as support, and the low volume tells you sellers did not try hard to push it back.

The failed breakout

Now the opposite. In this second sample session, price pokes above the range, but the volume says something different.

The lesson is simple: a breakout on thin volume is a question, not an answer. Wait for a close beyond the level with volume behind it, or for the retest. On SAHI, because index volume updates while the candle is forming, you can see a thin breakout for what it is before the candle closes.

Climax and absorption

Two more patterns are worth knowing. Both show heavy volume without the follow-through you would expect.

Climax candle

After a long move in one direction, a very wide candle prints on the heaviest volume in many candles. It looks strong, but it often marks exhaustion: the last traders who were waiting have now acted. If the next candles fail to extend the move, treat the climax as a warning, not a signal to join.

Absorption

Volume is very high, but the candle body is small and the wicks are long, usually at a known support or resistance. One side is pushing hard and the other side is absorbing all of it. If this happens at resistance during an up-move, sellers are defending the level. Watch the next candles for a break or a rejection.

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