Volume Analysis

Volume represents the number of stocks traded during a period. High volume indicates strong interest (both buying and selling), low volume indicates weak interest. The basic rule is that price movements with high volume are more significant than those with low volume.

Dow theory says that a rise should be confirmed by increasing volume. If the price rises but volume falls, the rise is weak — few participants support it. If the price falls with high volume, the decline is strong — many want to sell.

For Swedish retail investors, volume is extra important for small companies (small cap). A stock that rises 5% on SEK 100 000 in revenue is not the same as one that rises 5% on 50 million. The first can be manipulated easily, the second requires institutional participation.

A common mistake is looking only at total volume, not direction. 'Volume analysis' means distinguishing buying volume (the price rises) from selling volume (the price falls). A company can have high volume, but if 80% is selling volume, it is a negative signal.

Simple method: calculate the volume on up days and down days separately. If buying volume is 1,5–2x higher than selling volume over 10 days, the trend is positively confirmed. The reverse warns of a decline.

On-Balance Volume (OBV) by Joe Granville (1963) was the first popular volume indicator. OBV adds volume on up days and subtracts it on down days. The line should follow the price — if OBV turns down before the price, it is a warning of a coming price decline.

Volume-Weighted Average Price (VWAP) is the standard measure for institutional traders. VWAP calculates the average price weighted by volume. A price above VWAP indicates strong buying pressure, below VWAP selling pressure. Many algorithms trade around VWAP as a reference point.

The Accumulation/Distribution Line (A/D) is another indicator that weighs volume with price position. A/D rises when the price closes in the upper half of the day's range with high volume — a sign of accumulation by institutions.

For Swedish retail investors, VWAP is extra useful in intraday trading. If you buy a stock far above VWAP, you are paying a premium. If you buy near VWAP, you get the average price. Many brokers (Avanza, Nordnet) show VWAP in real time.