In order to trade in the stock market, real-time data is necessary during trading. Traders need to follow the trend in the market. Price fluctuation is not the only important factor, the volume also plays a significant role in the technical analysis of a stock. Though, the article will cover volume breakout, before start let’s have a quick look at the definition of volume. Trading volume or volume is nothing but the entire amount of a security that was traded during a specific period of time. In more simple words, volume interprets the number of shares that change hands between buyers and sellers during a particular time span. In case of volume analysis, you have to come across the term average volume which calculated by the total amount of trading divided by the length of the period.
Now, move on to the main topic of today. We are going to start with the meaning of the volume breakout.
Volume Breakout in the Market
Some of the traders focus only on price breakout pattern in order to find out the entry-exit point and support-resistance level but this should not be done. You need to co-relate few factors together such as price, volume, indicators, oscillators etc to get an accurate analytical view. Just like price, in volume also breakout happens quite often. Traders have to identify them prior to any continuation or reversal of trend. Generally, volumes tend to go in a certain range or way, an abrupt or sudden increase in volumes refers to volume breakout.
There are certain strategies which come under volumes breakout. Among them, Volume Spike is the most important breakout strategy of volume. From here, we will go through the topic. At the end of the topic, you get Amibroker AFL Codes which will help you to find out the spikes in the volume.
Volume Spikes and Price
In a normal range, an abrupt sharp rise in volume considers as volume spike. The spikes are easily identifiable. A spike in volume may indicate a bullish or a bearish trend. When everyone wants to get out of a stock by selling it, a bearish trend appears and the opposite happens with a bullish trend. Traders can identify the trends by using colored volumes also.
In order to avoid the false signal, you may apply indicators and oscillators while analyzing volume and price.
Volume Breakout Interpretation with Example
To clarify the subject in an easy way, an example is attached below:
The above chart is taken from the Amibroker charting platform. The script is on Adani Enterprises daily chart. I highlight the area of spikes. As you can notice, before appearing the bullish trend, a sudden long spike arise in the normal range of the volume. The spike indicates an upcoming bullish trend. Now, look at the second spike I have highlighted. The second spike comes prior to the downfall of the price, indicates a long upcoming bearish trend in the market. Remember one thing, if spike comes after a downfall of price, the price generally goes up after that. and vice versa.
Download Volume Breakout FREE Amibroker AFL Codes
At the beginning of the article, we promise you to give a FREE Amibroker AFL Codes to find out the volume breakout. Click on the link below. By applying the code in the Amibroker, you will get an instant detail of volume breakout on any of your selected script.
As you need to install Amibroker first to work on this code, for your helping purpose we provide the link for that also.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.