Price acts as the market’s pulse, but without volume, it lacks depth. To grasp this fully, let’s reflect on the timeless wisdom of Jesse Livermore, one of history’s most successful traders:
“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
To reframe this idea: trading remains unchanged at its core. As previously discussed, Volume Price Analysis (VPA) has existed for over a century, much like price analysis itself. The only significant shift in how traders interpret price came with the widespread adoption of candlestick charts in the early 1990s.
Markets don’t just evolve in price action; trading strategies shift over time as well. New methods emerge, gain popularity, then fade away. A recent trend is Price Action Trading (PAT)—a strategy that relies solely on price, often disregarding indicators entirely.
At first glance, this might seem logical. However, imagine explaining this to legendary traders like Jesse Livermore, Charles Dow, Richard Wyckoff, or Richard Ney. What if you told them modern traders only analyze price, without volume? They would be astonished. Their success was built on understanding how volume validates price action.
That’s why I don’t just teach price action—I reinforce it with volume analysis. Combining both perspectives gives traders the clearest possible market insights.
The Trading Floor: Where Market Sentiment Came Alive
The Bombay Stock Exchange (BSE) trading floor was once a hub of energy, filled with brokers clad in colorful jackets, shouting orders and using intricate hand signals to complete trades. The structured chaos allowed traders to rely on human intuition, reading market sentiment and making quick decisions. This open outcry system provided an edge—traders could assess market momentum by observing the urgency and emotions of their peers, making volume a critical factor in trading success.
These traders thrived in a highly physical environment where they could feel the market’s pulse in real time. They sensed shifts in sentiment through the collective behaviour of the crowd. The noise, the urgency, the hesitation—these subtle cues revealed the true state of the market.
Then came electronic trading, and with it, a fundamental change.
Many pit traders struggled to transition to screen-based trading. Why? Because they lost their ability to read volume intuitively. The days of judging market sentiment through physical interaction were gone. No longer could they interpret hesitation, panic, or confidence by watching the crowd.
What they had in the pit was real-time order flow, which we now analyze through volume charts. When the trading floor disappeared, so did the ability to validate price action through direct observation. This is why understanding volume’s role in modern markets is essential for trading success.
The Illusion of Price Action Trading Without Volume
Consider this analogy:
Imagine attending a live auction, surrounded by bidders. You can see their body language, sense their enthusiasm, and recognize hesitation as prices climb. You know when the room is buzzing with activity and when momentum is fading. This is what pit traders experienced—they could “read the room” and anticipate moves.
Now, picture an online auction. You see only the price updates but have no idea how many bidders are involved. You don’t know if the auction house is placing fake bids to drive up the price.
This is the flaw of price action trading in isolation. Price alone lacks context. Volume fills in the gaps.
Why Smart Traders Use Volume to Confirm Price Action
A price movement without volume is unreliable. Seasoned traders understand this and always evaluate volume to confirm price trends before acting. Here’s why:
- A strong breakout should be accompanied by increasing volume. If volume is weak, the move is likely unsustainable or manipulated.
- Pullbacks on low volume indicate a temporary retracement rather than a full trend reversal.
- Reversal patterns like double tops and bottoms gain credibility when volume spikes at key levels.
By integrating volume analysis, traders gain a deeper insight into price movements, avoiding traps and false breakouts.
Price Without Volume is an Incomplete Story
Analyzing price alone is like reading a novel with missing pages.
Price reflects market sentiment at a given moment, but in today’s markets—dominated by algorithms and frequent manipulation—can traders truly rely on price alone?
How Volume Unmasks Market Manipulation in Price Action Trading
Market makers and institutions use tactics to deceive retail traders, such as:
- False breakouts: Price surges to lure in traders, only to reverse.
- Stop hunting: Price is pushed to trigger stop losses before reversing.
- Thin liquidity traps: Moves happen with little volume, making them unreliable.
This is where volume acts as a truth detector. It exposes hidden strength and weakness in price moves. If a price move happens on low volume, it’s likely a trap. If a breakout occurs with strong volume, it has real conviction.
That’s why the great traders of the past would never have traded without volume. They understood that price was only part of the equation.
The Changing Role of Price in Modern Markets
Technology has transformed trading, not just in execution but in how we interpret price itself.
Decades ago, markets had fixed trading hours. The opening price was highly anticipated, and the closing bell marked the final showdown of the day. Traders made their moves based on these key levels.
Today, with 24-hour markets, price is no longer tied to a single session. But one truth remains: price still reflects the balance of supply and demand. And volume remains the key to unlocking that information.
How to Use Volume to Validate Price Trends in Trading
To filter out noise and false signals, traders should always look at:
- Volume spikes at key levels: A breakout is more likely to sustain if volume surges.
- Divergence between price and volume: If price moves up but volume falls, the trend may be weakening.
- Climactic volume: If a move ends with an extreme volume spike, it could signal exhaustion.
By understanding how volume confirms price action, traders can make smarter, more informed decisions—avoiding manipulation and capitalizing on real market trends.
Price is Only Half the Story
Price may be the heartbeat of the market, but volume is its pulse.
- Price tells you what is happening.
- Volume tells you why it’s happening.
Ignoring volume is like trading blindfolded—you may see the price, but you’re missing the context behind the move. That’s why successful traders, from Jesse Livermore to modern-day professionals, always validate price with volume.
In the next section, we’ll break down the four key components of a price candlestick—open, high, low, and close—and how electronic trading has changed their significance. More importantly, we’ll explore how volume confirms these price movements, helping us separate real market moves from manipulation and noise.
Because at the end of the day, price is only half the equation. Volume reveals the rest.
Note: This article is part of Tradonomics’ Smart Money Secrets with Volume Price Analysis series. Explore it to unlock powerful trading insights and master Volume Price Action!