Trading Volume Breakouts: How to
Praveen Dubey (SEBI Registered RA)
SP RESEARCHVIA PVT. LTD. (INH000015808)
Using Volume to Confirm Price Moves
Many breakout traders fall victim to fakeouts, where a stock price breaks above a resistance level only to quickly fall back below it. Analyzing volume spikes is the best way to confirm the strength of a price breakout. SP RESEARCHVIA PVT. LTD. details the technique.
How does trading volume validate a stock price breakout?
A reliable breakout must be accompanied by a sudden surge in trading volume (typically 2x to 5x of the 20-day moving average volume). This confirms that institutional buyers are driving the move, rather than retail speculators.
Volume Spread Analysis (VSA) Tips
- Low Volume Breakouts: If a stock breaks above resistance on thin volume, it is highly likely to fail and revert.
- Climactic Volume: A massive volume spike at the end of a long trend often indicates institutional profit-taking and potential trend reversal.
Written by Praveen Dubey
Chief Research Analyst | SEBI Reg: INH000015808
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