A deep dive into the different ways volume can be read

We’re in a market where macro reports have taken a back seat— daily news is driving prices.

It’s a time for weekly and daily trading, and in this context, it’s technical analysis that guides us.

We already know we’re in a volatile price environment, where everything depends on momentum— and momentum runs on volume.

Volume is the fuel of price action—without it, the market doesn’t move

Volume

A tool with many uses, depending on how it’s measured and the trader’s experience.

What it helps with:

• Validating breakouts and patterns.
• Confirming trends.
• Spotting divergences (the most powerful signal in technical analysis).
• Gauging market momentum.
• Finding “equilibrium” prices or value zones.
• Identifying overbought/oversold areas.
• Locating stop zones and liquidity pockets.

Types of Volume

• Classic
• Volume Profile
• Volume Profile by Period
• On-Balance Volume (OBV)
• Volume RSI

Classic Volume

Volume = ∑ Number of shares or contracts traded over a period. It could be one large buyer or many small ones.

Note:  If it’s Monday and you’re looking at a weekly chart, the last volume bar isn’t real— you’ll need to wait until Friday’s close to get the full picture.

A sequence

This setup is a short trigger for us.Confirmation comes with a close below the trendline.

Divergences – the most effective signal volume builds

Note the blue and red straight lines—this is a bullish divergence.

Now, read the chart—what’s happening here?

 Price is rising, but with fewer and weaker buyers—likely retail or “stupid money”(small trades). Since no one’s selling yet, that’s enough to push the price higher.

The problem

The position becomes overcrowded—there are no buyers left to sustain the rally.

The break

A bit of profit-taking or a small scare triggers selling.It doesn’t take much—just enough to break a local high/low or a trendline/support.

The snowball

That triggers more profit-taking, which forces others to do the same. Stops start getting hit, liquidity pockets form,and the asset drops like a rock—that’s when it’s attacked.

It’s classic herd behavior, like we discussed in the last episode.

The divergence tells you it’s just a matter of time.Mathematically, it can’t go on—there are no more buyers.Only a surge in volume in the original direction could reverse it.

Its weakness is in the timing—because an asset can stay in divergence for a long time.

That’s when you remember the old line:

“The market can stay irrational longer than you can stay solvent”.

Volume Profile: How it works and describes a market

Volume at Price (VAP) = ∑ Volume traded at a specific price level, whether bullish or bearish.

It shows the trading activity at each price level, revealing the equilibrium price for the timeframe displayed on screen.

Volume is plotted along the Y-axis (vertical).

The value area and liquidity voids stand out—those voids are what we call the path of least resistance.Markets tend to move toward them—some refer to this as a squeeze.

Important note: It calculates volume based on the visible timeline on your screen.

In this case, I zoomed the chart back to July 2022, when the yield curve inverted.

Note the difference between timeline and timeframe—this often causes confusion.

Dynamic equilibrium prices

The black line is called the P.O.C. (Point of Control), but I prefer to call it the equilibrium price—because that’s exactly what it was at that moment, on that timeframe.

It’s where buyers and sellers meet at the most liquid price—where the majority were willing to trade and to me, that’s the definition of equilibrium.

As we know, equilibriums are dynamic. They shift as new information enters the market. But that doesn’t take away their importance— if price returns to that zone, it will likely matter again.

To match the same analysis window (from July ‘22), I had to zoom in a lot—that’s why volume isn’t clearly visible on the daily chart.

Volume Profile by Candle Timeframe

It’s essentially the same as standard Volume Profile, but here you limit the analysis to a specific date range.

Zoomed in

Each candle represents one week and each week has its own volume profile and equilibrium price.

This is one of the ways we confirm support and resistance.

Per-candle histograms -AND- normal distribution

Notice the histograms for each candle— how Volume Profile illustrates the internal structure of volume each week.

A normal distribution gradually skews in the direction of the trend.

Volume RSI

For those who love RSI—and there are many— I’ve never understood why more traders don’t use this superior version.

The blue rectangle highlights the situation we discussed above:Price rises not because of strength, but because no one’s selling and only a few buyers are present.

Volume picks up, a critical level breaks on rising volume… and then, it’s game over.

The line shows the RSI weighted by volume.

Key difference from standard RSI:

• Standard RSI treats every period equally.
• Volume-Weighted RSI (VW-RSI) gives more weight to high-volume days, offering a better read on market conviction.

On-Balance Volume (OBV)

Another useful tool to track how volume confirms or contradicts price.

It simply adds volume on up days and subtracts it on down days.

In B, OBV rises despite low volume—because there are only buyers. Then selling begins, and volume gets subtracted from the total.

Price follows O.B.V

Interpretation

• Rising OBV → Accumulation (more volume on up days).
• Falling OBV → Distribution (more volume on down days).

Divergences

• Price up, OBV down → Weakness (possible bearish reversal).
• Price down, OBV up → Strength (possible bullish reversal).

Volume and Macro Narratives

Setup: Trading Narrative 4 — Shorting SPY

Vehicles: 

Leveraged: HIBS, SPXS, TZA, TWM

We’ve covered this before—your vehicle must match your hypothesis: an overextended index, slowing growth, and small-cap exposure…

x1: SPDN 

Context

This started well before the tariffs. We identified Stages 2 and 3 with precision—we knew their characteristics, and we knew what we were looking at.

Remember, we’ve been developing a macro and intermarket hypothesis for nearly a year now.

The tariffs just accelerated what was already coming—they brought more participants into the “revolution” earlier.

Now, we’re trading momentum— until price proves us wrong and signals we’ve entered Stage 1.

Triggers

Everything comes down to key levels and volume on the lower timeframe.

It all depends on style, time horizon, and leverage—but technically, all are valid trades if volume confirms, on the lower timeframe! 

A,B and C they all enter at different points, but each one begins with a bull trap on low volume.

The only difference is when they choose to enter. You can trade one style, or all three, splitting your entries accordingly.

We prefer trade setup C, because the P/L is clearer.

Important

A stop hunt or squeeze followed by a reversal is a very strong bearish signal. It’s the market in wild mode, snapping back into direction.

Excellent momentum—and likely to see follow-through.

That’s all for the Explorers tier.

Remember—this is our actual work, shared for marketing purposes.

We’ll stay in touch.

Martin