If you are struggling to get a high win rate in trading, using volume can help a lot.
I mean, in my around eight to nine years of trading journey, I have used volume as an extra confirmation to improve the quality of the trades.
Higher trade quality results in a higher win rate.
So I want to share five setups where volume has helped me greatly.
Number one: If you like trend trading, then you will like this one.
You see, one of the main problems we face as traders is not knowing if a trend still has strength or if it’s going to reverse.
But in an uptrend, when the price makes the upward move, check if it does that with a higher volume.
Like, check if the volume rises or stays high.
If the volume goes down instead of rising or staying flat, then the upward move might be weaker.
If that’s the case, then it’s better not to enter trades in this low-volume weaker upward move.
If the upward move is really strong, then you will see the volume rise or stay high as well.
Number two: Speaking of trends, if you like to trade at the end of the pullback, then check if the price made the pullback move with a lower volume or not.
In an uptrend, if the upward move had higher volume, and the downward pullback move had lower volume, then the pullback is weaker than the upward pressure.
That’s exactly what we need as trend traders.
We need the uptrend to be strong, and the pullback to be weak.
Number three: But after a weaker pullback, there is another thing we can do.
This will apply to all timeframes, but when I was trading on smaller timeframes, I used to draw a line on the pullback.
And when the price gave a breakout above this pullback line, I used to see if the volume increased by a good amount as well.
If yes, then I took the trade.
But most of the time, I used this as extra confirmation.
Like, the main reason for entry was a candlestick pattern or MACD or something else.
Number four: Speaking of candlestick patterns, if an engulfing pattern engulfs with significant volume, then I see it as a stronger engulfing pattern.
This will probably apply to most candlestick patterns.
But I gave an engulfing example, because it makes more sense here.
Like, in a bullish engulfing pattern, if the downward red candle had lower volume, and the upward green candle had higher volume, then in this higher trading activity, the buyers were much stronger.
That’s what we want in a bullish engulfing pattern.
Number five: Now, you know how some price levels are more important than others?
Like, if there is a support, many people will buy at that level, and set the stop-loss below it.
Similarly, when the price comes near resistance, many people can sell, creating higher volume.
So, what I sometimes do is, let’s say I’m in a long trade, and there is a weak resistance price level.
Now, I’m not sure if this price level will create higher selling pressure to move the price down.
I want the price to move up, so I’m not sure if I should exit my trade near this weak resistance or not.
If the higher selling pressure doesn’t appear, and I exited the trade in fear, then I closed the trade for no good reason.
So, instead, I like to see if the volume rises at this price level.
If more people reacted and entry-exit orders were created at this price level, then the volume should go up.
But that’s not enough to see if buyers are stronger or sellers.
It’s just higher buying-selling activity.
So, if the volume rises and I see a good-sized red candle, then I know sellers were stronger at this important price level.
When this happens, I prefer booking the profit early and closing the trade.
That’s pretty much it.
That’s how I have used volume in my around eight to nine years of trading journey.
Thanks for watching!