Many investors only focus on price action (price movement) and overlook volume, leading to being trapped in fake rallies (Bulltrap) or selling right at the bottom (Beartrap).
In technical analysis, there is a golden rule: "Price can lie, but volume is the truth." Volume is the fuel—it represents real money flow and the level of commitment by major investors (Big Boys/Market Makers) to a trend.
🛡️ 1. The VPA Principle (Volume Price Analysis) – Decoding Effort
The VPA (Volume Price Analysis) theory, developed by Richard Wyckoff, holds that the relationship between effort and result is key to predicting trends.
Volume = Effort: Reflects the total amount of money involved in trading.
Price = Result: Reflects changes in a stock’s price.
The result should be proportional to the effort. If the effort is great but the result is poor, or vice versa, it signals something unusual and warns that the trend may soon reverse.
🧱 2. The Relationship Between Price & Volume (4 Basic Cases)
Identify the market’s 4 basic conditions based on convergence or divergence between Price and Volume:
Case 1: Price Up, Volume Up (Up Price, Up Volume)
🟢 Positive Convergence: Buying pressure (Demand) overwhelms selling pressure (Supply); strong buying effort is rewarded with rising prices.
Meaning: A sustainable uptrend (Uptrend) is confirmed. This is the ideal condition.
Case 2: Price Down, Volume Up (Down Price, Up Volume)
🔴 Negative Convergence: Selling pressure (Supply) overwhelms buying pressure (Demand); heavy selling effort drives prices sharply lower.
Meaning: A strong downtrend (Downtrend) is confirmed. This is the most dangerous condition.
Case 3: Price Up, Volume Down (Up Price, Down Volume)
⚠️ Negative Divergence: Price rises without commitment from big money; buying effort is weak.
Meaning: Warns of a weakening uptrend (Weak Uptrend), with a risk of reversal.
Case 4: Price Down, Volume Down (Down Price, Down Volume)
🟡 Balanced Convergence: Selling pressure weakens as selling effort declines.
Meaning: Warns of a weakening downtrend (Weak Downtrend), which may be entering accumulation or undergoing a healthy correction.
🔄 3. How to Use Volume in Trading
Don’t assess volume subjectively. Base your decisions on the Effort and Result structure:
🟡 Breakout Confirmation: A breakout from a consolidation zone is considered successful only when accompanied by a sharp increase in trading volume (1.5–2 times the average).
🟢 Pullback Confirmation (Correction): In an uptrend, if the price pulls back to a support zone while volume gradually declines, that signals a healthy correction $\rightarrow$ Buy here.
🔴 Reversal Warning: When price reaches a strong resistance zone and volume surges but price cannot rise further (hesitation/stalling), this signals distribution by big money.
💡 TODAY’S MESSAGE:
"Don’t just look at the result (Price); look at the effort (Volume) to determine whether that result is sustainable. Volume never lies!"
Open your stock chart: Look at the most recent up sessions and see whether volume has increased accordingly. Is the stock’s move being confirmed, or is it weakening?
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