Ask most traders what high trading volume means, and they’ll say: “Oh, demand is greater than supply.”
Sounds neat, but it’s dead wrong.
The reality is that volume itself is neutral. Every trade has both a buyer and a seller. If 1,000 shares are traded, there are exactly 1,000 buys and 1,000 sells—always equal. So how could “high volume” automatically mean demand is greater than supply?
That’s the first trap most beginners fall into. Let’s break down the real logic behind trading volume, so you stop being fooled by half-baked “volume-price rules.”
1. Volume Doesn’t Measure Demand vs. Supply
Here’s the uncomfortable truth:
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Trading Volume = Buy Volume = Sell Volume
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Every trade is an agreement between two sides at the same price.
So when you see a fat green candle with huge volume, it doesn’t mean buyers crushed sellers. It means a lot of sellers were also willing to trade at that price. High volume means activity, not dominance.
Think of it like this:
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A crowded marketplace doesn’t mean buyers outnumber sellers. It means there’s energy, movement, and willingness to deal.
2. Price Moves Because of Potential Imbalances
If volume is always equal, then why do prices rise or fall?
Because of hidden orders—the potential demand and supply waiting at different price levels.
Example:
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At $10, only 100 sellers are willing to part with shares.
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At $15, 500 sellers show up.
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Meanwhile, 2,000 buyers are lined up, willing to pay anything under $15.
Result? Buyers gobble up everything from $10 up to $15 until balance is restored. The price climbs not because there were “more buyers than sellers,” but because buyers were willing to pay more than sellers demanded at the low end.
This is the heart of supply-demand imbalance: price tolerance, not raw volume.
3. Rethinking Classic Volume-Price Patterns
Most technical books say:
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“Price up + volume up = strong uptrend.”
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“Price up + volume down = weak rally.”
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“Price down + volume up = strong sell-off.”
That’s a nice story, but oversimplified. Reality looks more like this:
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Volume up + price up → both buyers and sellers are more active. Demand might be stronger, but sellers agreed to sell just as eagerly.
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Volume down + price up → fewer participants. Could mean exhaustion… or strong hands quietly controlling the float.
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Volume up + price down → sure, sellers are eager. But also, buyers are catching the falling knife.
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Volume down + price down → low conviction on both sides. Sometimes bottoms form here.
The point? Volume confirms nothing by itself. It’s context that matters.
4. Volume’s Real Jobs in Trading
When understood properly, volume is powerful:
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Reflection of Activity – Are traders even interested in this stock?
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Trend Verification – A sustained uptrend with rising volume suggests new money entering.
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Reversal Signals – Volume spikes at bottoms or tops often hint at turning points.
Think of volume like a heartbeat. It doesn’t tell you if the patient is healthy or sick, but changes in rhythm can warn you when something’s shifting.
5. The Investor’s Mindset: Patience Over Noise
Many retail traders obsess over every bar of volume and price. But great speculators know:
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It’s better to miss a trade than chase the wrong one.
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When volume and price don’t align clearly, do nothing.
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“Victorious soldiers win before they fight.” That means waiting until the market gives you obvious signals.
The best traders are masters of waiting. Volume helps you listen for those signals, but only if you understand its logic: activity, not dominance.
Final Word
Next time someone tells you “high volume = strong demand,” smile politely and ignore them.
The truth about trading volume is subtle: it’s not who’s stronger, it’s how willing each side is to move price. Volume shows you the energy in the room. Price tells you who’s winning the tug of war.
Get that logic straight, and you’ll stop misreading markets—and stop donating money to those who already understand it.
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