Updated: Sep 22
Volume Analysis is another key factor in every trade. Volume helps show us how many people and/or funds are hopping in or out of a trade or investment. If price goes up on large volume, this would typically. be considered bullish. If price goes down on large volume, this would typically be considered bearish. When scanning for stocks I always make sure they are liquid. When scanning through the Russell 2000 small-caps, I always ensure they have an average volume of 500,000 shares or more each day. I typically do not worry about the average volume on stocks in the S&P 500 as they will usually see enough volume to allow me to enter.
Taking a look at the weekly chart of $STNG you can see a consistent pattern of above-average volume as price began its uptrend. The volume and options flow (will dive into options flow in a later post) led me to believe this move was for real. Price consolidated under that key high from 2021 before posting a bullish engulfing candle on big volume off its EMA ribbon.
In conclusion, you want to be on the right side of volume. In a bullish chart setup, follow the big money in and manage risk from that point forward.