What is Volume Confirmation?
"Volume precedes price." This old Wall Street adage implies that significant price moves are often fueled by heavy volume. Volume confirmation is the practice of checking trading volume to see if a price trend or breakout is valid (supported by big money) or false (low volume, likely to reverse).
The Rule of Thumb
Price rising on decreasing volume = Weak Trend (Bearish divergence).
Price rising on increasing volume = Strong Trend (Bullish confirmation).
Trading Strategy
Valid Breakout
- Price breaks a key resistance/support level.
- Volume Spike: Volume is at least 150-200% of the average.
- Candle closes strongly beyond the level.
Fakeout (Trap)
- Price breaks a key level.
- Low Volume: Volume is average or below average.
- Price often reverses quickly, trapping traders on the wrong side.
Disclaimer
Volume data on crypto exchanges is fragmented. What you see on one exchange might not match the global volume. Always check multiple sources or aggregate data.