Volumetric market analysis

What is Volume Market Analysis?

Volume market analysis is a method of technical analysis based on studying trading volumes, which reflect market participants' activity. Unlike traditional analysis that focuses solely on price, volume analysis helps identify the true intentions of large players (market makers) and determine where they are directing liquidity.

Key Principles of Volume Analysis

To successfully use volume analysis, it's essential to understand a few key principles:

Volume precedes price: A sharp increase in volume often signals an upcoming price impulse.
Hidden signals from large players: High volumes may indicate position accumulation by institutional traders.
Liquidity and volatility: Higher volumes lead to greater liquidity and a higher probability of significant price movement.

What Data is Used in Volume Analysis?

Traders use various tools and metrics for volume analysis:

Tick volume: Shows the number of price changes over a given period.
Real volume: The actual number of contracts bought and sold.
Delta Volume: The difference between buy and sell orders at market prices.
Open interest: The number of open positions in the futures market.

Why Use Volume Analysis in Trading?

Volume market analysis allows traders to make more informed decisions by analyzing the dynamics of supply and demand. Using volume indicators helps to:

Identify accumulation and distribution by large players.
Determine high liquidity zones and potential reversal levels.
Understand trend strength and the probability of its continuation.
Find low-risk entries with high profit potential.

How Does Volume Analysis Complement Technical Analysis?

Volume indicators work particularly effectively when combined with classic technical analysis tools such as:

Candlestick patterns: Volume can confirm reversal formations.
Trend indicators: Trend confirmation with increasing volume.
Support and resistance levels: High volume at levels indicates interest from major market participants.

Main Tools of Volume Analysis

Volume analysis includes various tools that help traders gain a deeper understanding of market processes. Let’s examine the most popular indicators and methods.

1. Volume Profile

Volume Profile is an indicator that displays the distribution of volume at different price levels over a given time period. It helps identify key support and resistance levels.

Identifies zones with the highest volume concentration (POC – Point of Control).
Shows where large players accumulated or distributed positions.
Helps find areas of market balance and imbalance.

2. Delta Volume

Delta Volume analyzes the difference between active buyers and sellers, showing real market pressure.

Positive delta: More market buys than sells.
Negative delta: Market sell orders dominate.
Neutral delta: Even distribution between buyers and sellers.

3. Footprint Charts

Footprint charts allow traders to analyze precise trade volumes in each candlestick, providing insights into liquidity distribution.

Show where large transactions are occurring.
Allow traders to detect hidden market maker activity.
Used to find low-risk entry zones.

4. Open Interest

Open interest is a key metric for futures analysis. It shows the number of open positions and their dynamics.

Rising open interest indicates new participants entering the market.
Falling open interest suggests players are exiting the market.

How to Interpret Volume Data?

Volume analysis is an essential element of professional trading that allows traders to assess real market activity. Volume not only confirms trends but also helps identify possible reversals, large position accumulations, and potential entry levels.

1. The Relationship Between Volume and Trend

Volume plays a key role in assessing trend stability and distinguishing a true movement from weak continuation attempts.

Uptrend + increasing volume: Confirms the upward movement, indicating strong buyer interest.
Uptrend + decreasing volume: Signals potential weakening of the trend and the possibility of a correction or reversal.
Range-bound market + increasing volume: May indicate an impending breakout, especially if volume growth is accompanied by an impulsive candlestick.
Downtrend + increasing volume: Confirms bearish sentiment and the likelihood of continued decline.

2. Abnormal Volumes and Their Interpretation

Sudden volume spikes can signal key shifts in market balance. They often appear before major price movements.

High volumes at support and resistance levels: Indicate the activity of major players protecting their positions or opening new trades.
Sharp volume increase without price continuation: May signal a false breakout or the end of a trend.
Peak volumes in the middle of a trend: Often indicate momentum exhaustion and a transition to consolidation.

3. False Breakouts and Volume

Volume analysis helps distinguish false breakouts from true ones. If the price breaks a significant level without a notable increase in volume, it may be a trap for retail traders.

True breakout: Accompanied by rising volume, confirming participation of large players.
False breakout: If volume drops sharply after a breakout, the price is likely to return to the range.
Breakout with low volume: May indicate a lack of liquidity and an imminent return to the previous price level.

Practical Application of Volume Analysis

Volume analysis is applied in various trading strategies, from long-term investing to intraday trading. It helps identify market maker activity, assess liquidity zones, and find high-probability entry points.

1. Identifying Accumulation and Distribution Zones

Large institutional players rarely enter trades instantly – they distribute positions at key levels, creating so-called accumulation (Accumulation) and distribution (Distribution) zones.

Accumulation zone: A prolonged sideways movement with high volumes before a strong upward breakout.
Distribution zone: Consolidation after a long uptrend before the start of a bearish trend.
Breakout from a range: If the breakout is accompanied by a significant volume increase, a new trend is likely forming.

2. Volume Analysis in Trend Trading

Using volume analysis allows traders to find more precise entry points in trending movements while avoiding false signals.

Increasing volume at the start of a trend: Indicates the presence of major players, confirming trend strength.
Decreasing volume in the middle of a trend: Suggests a possible pause before the continuation of movement.
High volumes during corrections: If a correction is accompanied by increased volume, it may indicate a trend reversal.

3. Finding Low-Risk Entry Points

Traders can use volume levels to identify optimal entry points, minimizing risks and increasing the probability of a profitable trade.

Buying at a support level: If the level is confirmed by high volume, traders can look for entry signals.
Selling at a resistance level: High volume at resistance indicates a possible price pullback.
Using volume indicators: Tools like Volume Profile, Delta Volume, and Footprint Charts help identify market anomalies.

Volume Analysis and Candlestick Patterns

Candlestick patterns combined with volume analysis allow traders to receive more reliable trading signals. Volume confirms the strength of candlestick formations and helps identify true trend reversals. Using volume analysis together with Price Action significantly improves entry accuracy in the market.

1. Pin Bar and Volume

Pin Bar is one of the most popular reversal patterns in trading. However, its reliability significantly increases when it forms on high volume. Pin bars are reversal signals, but without confirming volume growth, they can turn out to be false.

Bullish pin bar at support + high volume: Indicates the presence of major buyers, suggesting a potential uptrend.
Bearish pin bar at resistance + increasing volume: Shows seller activity, signaling a possible downward reversal.
Pin bar with low volume: May be a false signal and does not confirm the reversal.
Pin bar with a strong wick and high volume: Indicates strong market pressure, often leading to a significant movement in the opposite direction of the wick.

2. Engulfing Pattern and Volume

The engulfing pattern is a powerful reversal formation that occurs when a new candlestick completely engulfs the previous one. However, without volume confirmation, such a pattern may be weak.

Bullish engulfing with increasing volume: Confirms buyers' intentions and often leads to further growth.
Bearish engulfing with high volume: Indicates that sellers have taken control of the market, suggesting a potential downtrend.
Engulfing on low volume: May be a false signal if not confirmed by other factors.
Volume accumulation before engulfing: If consolidation with high volume occurs before the pattern, it strengthens its significance.

3. How to Use Volume in Candlestick Pattern Analysis?

Candlestick patterns alone do not provide 100% certainty, but when combined with volume analysis, their effectiveness increases significantly. To correctly interpret volume data alongside Price Action patterns, you should:

Analyze support and resistance levels: Patterns forming at key levels with high volume are more likely to play out successfully.
Pay attention to volume characteristics: A sharp volume spike on the confirmation candle increases the probability of a reversal.
Use volume indicators: Tools such as Volume Profile, Delta Volume, and Footprint Charts provide a deeper understanding of price movement.
Monitor large traders’ behavior: If large orders appear in the order book while a pattern is forming, this may strengthen the signal.

Volume Analysis and Support and Resistance Levels

Volume analysis helps identify key support and resistance levels with high accuracy. These levels become particularly significant when confirmed by increasing volumes.

1. How Does Volume Help Identify Levels?

Traders use volume analysis to identify zones where the price is likely to reverse or continue its movement.

Sharp increase in volume at a level: Indicates the activity of major players, possibly forming a key level.
Large buy/sell orders: Demonstrate interest from institutional traders.
Prolonged volume accumulation: Often precedes a strong price movement.

2. Breakout of a Level and Volume

A breakout of a key level does not always mean a continuation of the trend – volume helps determine whether the breakout is genuine or false.

Genuine breakout: Accompanied by a sharp increase in volume, confirming the participation of large players.
False breakout: If the breakout occurs on low volume, there is a high probability that the price will return to the range.
Fake breakout with a candlestick wick: Often indicates market manipulation.

3. Retesting a Level

When the price returns to an important level, volume analysis helps determine whether the movement will continue or reverse.

Retest of a level with decreasing volume: Indicates weakening pressure, suggesting a potential reversal.
Retest of a level with increasing volume: Confirms its significance and increases the likelihood of a bounce.
Multiple tests of a level with high volume: Can lead to a breakout and the formation of a new trend.

How to Use Volume Analysis for Scalping?

Scalping is a high-frequency trading style where trades are opened and closed within a few seconds or minutes. Volume analysis helps scalpers identify short-term entry points and determine high-liquidity moments to minimize slippage and increase the probability of a successful trade.

1. Using Tick Volume

Tick volume shows the number of price changes per unit of time without considering the actual volume of trades. It is useful for small timeframes and helps identify active trading periods.

Sharp spikes in tick volume: Often precede impulsive moves, signaling the entry of large players.
Low volume before a sharp move: May indicate a lack of liquidity and the risk of a false impulse.
Volume and candlestick spread: If a candlestick has a wide spread but low volume, the move may be unstable.

2. Volume Clusters and Micro Levels

Volume clusters are areas on the chart where the highest concentration of orders occurs. Analyzing them helps identify local support and resistance levels, which are particularly important for scalping.

Clusters with high volume: Indicate the activity of major players and potential entry points.
Volume gaps: Can signal an impulse movement toward liquidity zones.
Bounce from cluster zones: If the price returns to a high-volume zone and bounces, it confirms its significance.

3. Tape Reading (Order Flow Analysis)

Order flow analysis (Tape Reading) is one of the key tools for scalpers, allowing them to see in real-time what trades are taking place in the market.

Large sell orders: Often precede price drops, as large players exit their positions.
Instant trades with large volume: Indicate increased interest from institutional traders.
Multiple rapid trades in one direction: May indicate the formation of a short-term trend.

How to Apply Volume Analysis in the Cryptocurrency Market?

Volume analysis in cryptocurrency trading is especially important due to the high volatility of the market and the lack of centralized regulation. Using volume helps identify liquidity zones, track the actions of market makers, and avoid manipulations.

1. The Difference Between Traditional and Cryptocurrency Volume

In traditional markets, volume reflects the actual number of bought and sold contracts, while in the crypto market, volume is calculated based on trading data from individual exchanges.

Crypto exchanges provide different volume data: This requires analyzing multiple sources for an objective assessment.
Order Book: Helps detect artificial liquidity levels and hidden orders.
Open Interest: Analyzing open positions on derivative exchanges helps determine trend movements.

2. How to Identify Accumulation and Distribution Zones in the Crypto Market?

Market makers often manipulate the crypto market, so it is essential to understand where positions are being accumulated.

Volume levels: Identify zones where liquidity accumulates before impulsive moves.
Large trade clusters: Show where market makers place significant orders.
Volume Delta: Helps determine whether buyers or sellers are dominating.

3. False Breakouts and Manipulations in the Crypto Market

Due to the highly speculative nature of the crypto market, false breakouts occur more frequently than in the stock market. Volume analysis helps identify them.

Sharp increase in volume without trend continuation: Often indicates a false breakout and liquidity collection before a reversal.
Anomalous buying before a price drop: May be a signal of market maker manipulation, tricking retail traders.
Unusual price behavior around high volume: If the price does not react to high volume, it may indicate manipulation.

4. Using Volume Analysis in Altcoin Trading

In the altcoin market, volume analysis works slightly differently because the liquidity of these assets is lower than that of Bitcoin or Ethereum.

Sharp volume spikes: Often associated with pump and dump schemes.
Analysis of large orders in the order book: Helps determine whether a trend is genuinely forming.
Volume and price divergence: If the price is rising while volume is declining, it may indicate trend weakness.

Common Mistakes When Using Volume Analysis

Despite the high effectiveness of volume analysis, many traders make mistakes that lead to incorrect interpretation of market data and false trading decisions. Let's examine the most common mistakes and how to avoid them.

1. Ignoring Market Context

Volume analysis does not work in isolation — it should be used in combination with other technical analysis methods and take macroeconomic factors into account.

Volume without considering market structure: Analyzing volumes without linking them to trends or support and resistance levels can lead to false signals.
Mismatch between volume and volatility: The market may show high volume but without significant movements, indicating consolidation.
Lack of signal confirmation: It is important to use volume indicators in conjunction with Price Action patterns, candlestick formations, and technical indicators.

2. Incorrect Interpretation of True Volume

Traders often fail to consider the specifics of different markets when analyzing volume, which can lead to inaccurate conclusions.

Forex: Here, volume is represented by tick data (the number of price changes), rather than actual trading volume.
Crypto Market: Volume varies between different exchanges, requiring analysis from multiple sources.
Futures and Stocks: Real volume data is available, but it is important to consider open interest volume.

3. Mistakes in Interpreting False Breakouts

Breakouts of levels without proper volume confirmation can lead to incorrect market entries.

True breakout: Accompanied by increasing volume and confirmed by trend continuation.
False breakout: If volume drops after the breakout, there is a high probability of price returning to the range.
Reversal breakout: If volume suddenly increases in the opposite direction after a breakout, this could be a reversal signal.

Common Mistakes When Using Volume Analysis

4. Ignoring Abnormal Volumes

Sudden volume spikes without understanding their cause can be misleading.

High volumes during consolidation: Often indicate position accumulation by large players before a move.
Peak volumes in a trend: May indicate potential exhaustion of the trend.
Abnormal volumes during news events: Require caution, as the market may change direction rapidly.

How to Choose a Platform for Volume Analysis?

For effective volume analysis, it is essential to use reliable trading platforms and specialized services. Let's look at the key selection criteria.

1. Availability of Volume Indicators

A high-quality platform should provide a wide range of tools for volume analysis.

Volume Profile: Displays volume distribution by price levels, helping identify accumulation zones.
Delta Volume: Analyzes the difference between market buys and sells, showing participant activity.
Footprint Charts: Allows traders to see the real order flow and volume at each level.
Order Flow: Enables tracking of real-time market volume inflows.

2. Access to Exchange Data

Volume data should come from reliable sources, as the accuracy of the analysis depends on it.

Stock Market: Access to NYSE, NASDAQ data allows traders to analyze stock volumes.
Crypto Market: Platforms integrated with Binance, Bybit, Kraken provide more accurate volume data.
Futures Markets: Access to CME, EUREX helps track open interest and real volumes.

3. Ease of Use with Charts

The platform should have a user-friendly interface that allows for quick volume analysis.

Flexible chart customization: Ability to adjust volume indicator display.
Multi-timeframe support: Volume analysis on different timeframes for better market insights.
Built-in analysis tools: Ability to overlay volume data on standard indicators.

4. Example of volumetric analysis platforms

There are several leading platforms that provide high-quality volume analysis tools.

✅ TradingView

Access to essential volume indicators.
Easy integration with crypto and stock exchanges.
User-friendly web interface.

✅ ATAS

Professional volume and order flow analysis.
Supports futures, stocks, and cryptocurrencies.
Advanced tools for working with Footprint Charts.

✅ Bookmap

In-depth liquidity analysis with heatmaps.
Streaming analysis of large orders.
Supports multiple markets, including cryptocurrencies.

How to Conduct Volume Analysis Independently?

Volume analysis is a powerful tool that allows traders to understand where large positions are accumulating and at which points the price may reverse or continue its movement. To use this method effectively, it is important to follow a clear algorithm and consider several key aspects.

1. Determine the Overall Market Context

Before analyzing volumes, it is necessary to understand the current market state, as volume levels function differently depending on the market phase.

Trending market: It is important to assess whether the volume aligns with the trend direction.
Range (consolidation): High volumes may indicate accumulation by major players.
Fundamental factors: News, reports, and macroeconomic events can impact volume.

2. Use Multi-Timeframe Analysis

Analyzing volumes across different timeframes provides a better market understanding and helps identify strong levels.

D1, H4 (long-term analysis): Identifies the global trend and key liquidity levels.
H1, M30 (medium-term analysis): Helps detect accumulation zones and possible breakout points.
M15, M5 (entry execution): Used to find optimal entry points confirmed by volume.

3. Analyze Volume at Key Levels

Support and resistance levels become much stronger if they are confirmed by volume. Pay attention to the following:

High volume at support: Confirms buyer interest, potential rebound.
High volume at resistance: Indicates strong selling pressure.
False breakout with low volume: May signal a return to the range.
Impulse breakout with increasing volume: Confirms breakout strength and the likelihood of trend continuation.

4. Monitor Delta Volume

The Delta Volume indicator helps determine who controls the market – buyers or sellers.

Positive delta: Market buys dominate, confirming bullish momentum.
Negative delta: Sellers dominate, which may lead to price decline.
Delta increase + volume growth: Trend strengthening, confirming movement continuation.
Delta and price divergence: If price increases while delta decreases, a reversal may occur.

5. Use Volume Indicators

Additional volume analysis indicators help interpret market movements more effectively.

OBV (On-Balance Volume): Shows asset accumulation or distribution based on volume changes.
VWAP (Volume Weighted Average Price): Helps assess whether market participants are buying above or below the average price, considering volume.
Volume Profile: Displays volume distribution at different price levels, helping identify high-liquidity zones.
Footprint Charts: Provides a detailed view of market orders, showing where traders execute large trades.

6. Watch for Volume Spikes

A sharp increase in volume may signal the start of a new move or a trend change.

High volume at the top of an uptrend: Possible profit-taking by major participants.
Sharp volume rise at support: May indicate aggressive buying and a potential reversal.
Abnormal volume during low liquidity periods: May be related to market makers and false movements.

7. Combine Volume Analysis with Price Action

For more accurate entries, volume analysis should be combined with classical technical analysis methods.

Candlestick patterns + volume: For example, a pin bar on high volume confirms a reversal.
Fibonacci + volume: Matching Fibonacci levels with volume accumulation zones enhances their significance.
Trend lines + volume: A trendline breakout with a sharp volume increase confirms a trend reversal.

8. Test and Adapt Your Strategy

Volume analysis requires practice and testing. Beginners often make mistakes in interpreting volumes, so it is important to:

Keep a trading journal and analyze the effectiveness of decisions.
Test different approaches on a demo account before real trading.
Monitor liquidity changes in the market (sessions, weekends, news).

Conclusion

Volume analysis is a powerful tool that helps traders and investors understand the true intentions of large market players. Unlike classical technical analysis, it allows not only the analysis of price movements but also the evaluation of market activity, identifying key liquidity levels.

The application of volume analysis in trading offers many advantages:

Helps identify key support and resistance levels.
Reveals the actions of market makers and large institutional players.
Allows distinguishing real breakouts from false moves.
Works effectively in combination with technical and fundamental analysis.

For successful volume analysis, it is important to:

Choose a high-quality platform with volume data (TradingView, ATAS, Bookmap, etc.).
Combine volume analysis with a multi-timeframe approach.
Use indicators such as Volume Profile, Delta Volume, and Footprint Charts.
Monitor the correlation of volumes with market events and news.

Final Recommendations

To make volume analysis an effective part of your trading strategy, follow these recommendations:

Do not ignore the overall market context – volume works better in trending movements.
Analyze price reactions at key liquidity levels.
Use volume data in combination with risk management.
Experiment with different volume analysis methods, adapting them to your trading style.

Mastering volume analysis requires practice, but over time, it will become a reliable assistant in your trading, helping you make more precise and informed decisions.