CA Manish Singh: 
Hello everyone, and welcome to Chapter 8. In this session, we will learn what volume truly represents in the market, how it is created, and how volume helps you make better trading decisions. Every buy and sell transaction contributes to volume, and understanding this flow is essential for judging market direction. 

What This Chapter Covers: The Role of Volume in Market Behaviour 

CA Manish Singh: 
Let us begin by understanding a simple concept. Volume is created when a buyer and a seller transact at a particular price. For example: 

If you want to sell a stock called X and I feel that the stock still has potential to go up, I may choose to buy it. Your selling and my buying create one transaction, which results in one unit of volume. 

Similarly, if I buy the stock and then decide to book profits, and another person buys the stock from me, the same stock has now changed hands twice and generated two units of volume. 

During market hours, thousands of such transactions occur as people buy and sell continuously. Every candlestick formed on the chart is built from these transactions. The total buying and selling that occurs within that candle forms its volume. 

How Volume Helps Understand Price Movement 

CA Manish Singh: 
Whenever price moves sharply up or down, volume usually increases because more traders participate in that move. For example: 

• If the price falls sharply, some traders will sell believing it can fall further.
• Others may believe the stock is available at a fair price and choose to buy. 
  Both actions create volume. 

Volume therefore helps us understand whether the current price move has strength or weakness. 

Let us now look at a practical chart to understand these signals better. 

Analysing Volume on a Live Chart 

CA Manish Singh: 
Before we begin, let me clarify that the example shown is not a buy or sell recommendation. We are using it simply to explain the concept. For this chapter, we have chosen Reliance, one of the largest and most traded companies in India. Its price cannot be influenced by you buying 100 shares or me selling 100 shares, which makes it ideal for explanation. 

This chart is different from the NIFTY 50 chart you saw earlier. Below the Reliance candlestick chart, you will see vertical bars. These bars represent volume, showing how much trading activity occurred at each point in time. 

A few common features of volume: 

• The 9:15 am candle almost always has high volume because the market has just opened.
• Towards the end of the day, between 3:00 pm and 3:30 pm, volume again increases. 

During the day, any sudden spike in volume indicates something significant. 

For example, you may notice: 

• A very small price candle
• But a very large red volume bar below it 

This means a large quantity was traded even though the price did not change much. This usually indicates that either profit booking or significant selling happened at that point. After such candles, price often struggles to move upward because a large seller may be active. 

Similarly, you will also notice candles with large price movement but low volume. Such moves are generally less reliable because they lack participation. 

Understanding Volume-Price Quadrants 

CA Manish Singh: 
To simplify volume analysis, we refer to the Volume-Price Quadrant, which explains how volume and price interact. You will see this clearly in the animation. 

In simple words: 

1. Volume increases, price increases 
   Higher buying interest. Trend may continue upward.
2. Volume decreases, price does not move much 
   Market may pause. Traders are waiting.
3. Volume increases, price decreases 
   Indicates strong selling. Prices may fall further.
4. Price continues falling but volume does not increase 
   No fresh sellers are participating. Price may reverse upward. 

Remember: 
Volume and price should ideally move together. If one stops moving, there is a possibility of reversal. 

Volume Profiling: Where the Market Traded Most 

CA Manish Singh: 
Let us now understand how to read a Volume Profile. 

When we apply the Volume Profile indicator on a 1-hour chart, we can see exactly how much volume was traded at different price levels, instead of different time intervals. 

For example: 

• In some zones, the profile bar is very small, which means very little trading took place at those prices. These zones are easier for the price to move through.
• In other zones, the profile bar is very large, which means the market spent a long time there and many positions were created. These zones provide depth and act as stronger support or resistance. 

In simple terms: 

• Low-volume zones = shallow, easier for price to break
• High-volume zones = strong, price often pauses or reverses 

Summary and Takeaways 

• Volume is created through buying and selling activity.
• High volume indicates strong interest or strong exit by market participants.
• Volume spikes can signal reversals, breakouts, or exhaustion.
• Volume and price moving together suggest continuation.
• If volume stops but price continues, reversal is possible.
• Volume Profile helps identify zones where the market has strong participation versus zones where it has very little interest.
• Volume analysis strengthens your support and resistance decisions. 

In the next chapter, we will learn about Dow Theory, which helps you understand market behaviour, trend structure, and how the market confirms its moves. 

Disclaimer: 
Investments in securities markets are subject to market risks. Read all related documents carefully before investing.