Volume

3.1 Why volume is the confirmation, not the trigger

Price shows you what happened; volume shows you how many participants agreed with it. A breakout above resistance on very thin volume is suspicious — nobody actually stepped up to defend the move. The same breakout on volume 1.5–2× the 20-bar average is real: institutions rotated into the position at that level.

The general rule: strong moves should come on strong volume. Anything else is either a fake or a low-conviction move that reverses within a few bars.

3.2 The four volume-price relationships

Every bar creates one of four price-volume combinations. Each has a distinct interpretation:

3.3 Volume divergence — the exhaustion signal

Divergence is the pattern: price makes a new high (or low), but volume shrinks. That's a warning that the move is exhausting. The last leg of many trends prints on progressively lower volume as participants stop chasing; that's usually the setup for a reversal or a deep pullback.

Two forms:

• Bearish divergence — new price high on volume lower than the prior peak's volume. Aggressive selling coming
• Bullish divergence — new price low on volume lower than the prior trough's volume. Selling pressure exhausted

3.4 Climax volume — the last flush

A climax bar is a single extremely high-volume bar (2×+ average) that comes at the end of an extended move. Two flavours:

• Buying climax — near the top of a rally. Retail piles in at the top, institutions distribute into the demand. Often a green bar with a long upper wick (rejection at the highs)
• Selling climax — near the bottom of a decline. Panic capitulation. Often a red bar with a long lower wick (the wick is institutions buying the panic)

Climax bars often mark short-term (and sometimes long-term) turning points. Look for a reversal candlestick pattern (Chapter 5) at the extreme of a climax bar and you have a high-probability reversal setup.

3.5 Institutional footprints — reading the pros

Retail volume is largely random noise; institutional volume moves the market. Four signatures to watch for in Indian equities:

• Stopping volume: a bar with unusually high volume, narrow range, close near the high (or low). Someone absorbed all the selling (or buying) to hold price — that's an institution accumulating (or distributing).
• Delivery percentage spike: NSE publishes daily "delivery %" (shares that actually change hands vs intraday churn). A spike from a 20-day average of ~30% to 60%+ signals real ownership taking place, not just intraday scalping. NSE India → Historical Data → Deliverable Positions.
• Block / bulk-deal disclosures: mandatory reporting when institutions cross specific size thresholds. Available on NSE and BSE public disclosure pages after market close.
• FII / DII net flow published daily by NSE. Consistent multi-day accumulation by FIIs is a stronger tailwind than any single-day price move.

3.6 OBV — the running total

On-Balance Volume is a cumulative running total that adds the day's volume when price closes up and subtracts it when price closes down.

If close > previous close: OBV = previous OBV + volume
If close < previous close: OBV = previous OBV − volume
If close = previous close: OBV unchanged

The absolute OBV number is meaningless (it depends on the arbitrary start date). What matters is the slope. If price is rising but OBV is flat or falling, distribution is happening under the surface. If price is flat but OBV is climbing, accumulation is happening before the breakout.

3.7 VWAP — volume-weighted average price

VWAP is the volume-weighted average traded price for the session. It resets every day at 9:15 am and rebuilds through the session.

VWAP = Σ(Typical Price × Volume) / Σ(Volume)
Typical Price = (High + Low + Close) / 3
(cumulative from session open)

Uses:

• Institutional benchmark — mutual funds and prop desks are graded on filling above/below VWAP. Their behaviour clusters around it
• Intraday trend proxy — price above rising VWAP = intraday uptrend; below falling VWAP = intraday downtrend
• Support/resistance — retests of VWAP after a breakout often act as entry points

The site has a dedicated VWAP indicator page with the interactive chart.

3.8 Volume Profile — where trade concentrated at each price

Traditional volume histograms show volume-per-time. Volume Profile shows volume-per-price-level — a horizontal histogram on the right of the chart showing how much of the session's (or week's, or month's) volume traded at each price. The peak of the profile is the Point of Control (POC) — the price where the most business got done.

Uses:

• POC often acts as a magnet (mean reversion target) and as intraday support/resistance
• Low-volume "gaps" in the profile tend to fill quickly if price enters them — no one was defending those levels

Available on TradingView (Volume Profile Session, Fixed Range, Visible Range) and Sensibull option-chain view. Not on Zerodha Kite's basic charts.

3.9 On the chart

The chart below shows Nifty 50 daily with a volume histogram at the bottom. Watch the correlation between big candles and big volume bars — the trend days are the ones where both agree.

RVOL = current cumulative volume / average cumulative volume at same time-of-day

The single biggest volume mistake

Treating index-futures volume the same as cash-market volume. Nifty futures volume peaks on Tuesday expiry due to rollovers — this isn't institutional accumulation, it's calendar mechanics. Always know what you're looking at.

• Volume on the cash index / underlying ETF — cleanest read
• Volume on individual stocks — very clean; no expiry distortion, delivery % adds real ownership signal
• Volume on index futures — noisy during rollover week; use with caution
• Volume on options — largely useless in isolation; use Open Interest instead (see the Options path Ch 24 practical plays for OI-based setups)