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Trading Volume is an extremely important but often overlooked indicator in the market. It is not just a number, but a direct reflection of the battle between bulls and bears. This article will reveal the essence of Trading Volume and how to interpret it correctly.
The essence of Trading Volume is the degree of disagreement between buyers and sellers. When market participants have differing views on the future trend of an asset, transactions occur, resulting in Trading Volume. The greater the disagreement, the larger the Trading Volume.
However, not all Trading Volume is worth paying attention to. We should focus on analyzing abnormal Trading Volume that occurs at key price levels. For example, after a consecutive rise, if there is a large amount of Trading Volume but the price does not show a significant increase, it may indicate that large funds are quietly exiting.
Market sentiment is closely related to Trading Volume. In a bull market, investor sentiment is high, trading is frequent, leading to large Trading Volume. Conversely, in a bear market, investor sentiment is low, trading willingness decreases, and Trading Volume is usually smaller.
Interestingly, a sudden increase in Trading Volume during a downtrend is often a positive signal. This indicates that the market is beginning to show divergence, which may suggest that the trend is about to change. As the stock market adage goes: 'When the market is bad, low volume is hell; when the market is good, low volume is heaven; when the market is volatile, first shrink to low volume and then increase is a good signal.'
When you are ready to enter a new trade, if the target asset suddenly experiences a large Trading Volume, it may indicate that both bulls and bears are in intense conflict. In this situation, it is wise to patiently wait until the Trading Volume decreases and the market direction becomes clear before making a decision.
Understanding and correctly applying Trading Volume analysis can provide investors with unique insights in a complex market. It not only helps us assess market trends but also provides important references for our trading decisions. Of course, Trading Volume analysis should be combined with other technical indicators and fundamental analysis to achieve a more comprehensive market assessment.