Volume is the overall sum of all transactions executed in the market (or a single company's stock) during a given period of time, which shows us market power (importance). In case of gold futures market, the gold volume represents the amount of contracts that were traded in a given period. The greater the volume, the more powerful the market. Volume plays a significant role in the confirmation of a suggested price movement.

In order to confirm the trend, volume should increase when the price moves with the trend and decrease when the price moves against the trend. When the market is in an uptrend volume should rise when price increases and fall when price decreases. The upturn is strengthened when buyers are willing to buy shares despite the rising price because they believe that upward momentum will continue. When volume moves against price it means the trend is weak. Low volume during an uptrend means that buyers do not believe that this trend will hold for much longer.

The analysis of trends based on price alone does not give us the whole picture of the market, but supplementing it with the analysis of volume can give a far better evaluation of real supply and demand in the market, and can reveal the strength or weakness of a trend.

However, there is still the possibility that the market will continue its upward trend. This situation can occur when buyers start to leave the market or become sellers. It also works the other way around. Volume analysis is an elaborate issue, but it is worthy of attention so we use volume analysis as our tools.

To show you this phenomenon more clearly here is an example:

You will notice that from November to January there was an uptrend in price with a concomitant uptrend in volume, indicating that demand was rising. It is worth mentioning that in January volume was rising and falling with price, which confirmed the uptrend. However, the situation was different between February and March. At point 1 you can see that a price top appeared with a high volume value, but from point 1 to point 2 price was still rising and volume was falling. The same situation occurred between points 2 and 3. Despite prices reaching new tops, declining volume was a sign of a weakening uptrend. As you can see between March and April there was a strong downturn.

Volume in Gold

To see just how important the analysis of volume in gold might be, let’s take a look at an example.

Gold - Continuous Contract

Let’s focus on 2013. Gold was already tipping over, having ended the 2000/2001-2011 bull market. However, what is obvious in retrospect was not obvious back then as there was still a possibility of a move up. So, the outlook was not decidedly bearish. That is, not until April 2013 came. The month saw a massive move down in the yellow metal, but the magnitude of the move in the price was one thing. The volume was another thing entirely. It’s obvious from the chart that the move down took place on the most pronounced volume in years. Actually, if you look back at the 20 years preceding the 2013 slump, you… Won’t find a daily session with higher volume. So, in this particular situation, a massive drop in price was accompanied by a cosmic surge in volume. It is only fitting that this was the end to a 10-year bull market.

Volume in Silver

Silver can be analyzed from the volume angle pretty much the same way. A look at the weekly price chart from 2016-2018 shows a point where the analysis of volume could have been a helpful addition to one’s repertoire.

Silver - Continuous Contract

The end of 2017 was a point where silver was after a  significant decline below $16, followed by a move up which erased practically all of the previous depreciation. It could have been interpreted as a beginning of a new rally.  Are four weeks of appreciation a clear clue? Maybe, but a look at the volume in silver shows that the clue might have been something different than the price alone suggested. Namely, the move up took place on volume which was relatively low, visibly lower than the volume that had accompanied the preceding decline and sideways trading. A move up on weak volume might be construed as a bearish hint, as it has been mentioned before. And in this case, the move fizzled out quite quickly with declines eventually taking hold of silver.

Volume in Crude Oil

Crude oil is traded in the market and the volume readings can also be used as signs of unfolding developments. The weekly chart for light crude shows such a situation.

Light Crude Oil - Continuous Contract Weekly

The end of 2016 was a period when crude went up decisively. This could have been read as a sign of a rally taking off. However, the analysis of volume would have potentially changed this interpretation. Throughout December, crude was still up, but not by much and the volume was declining. This was a situation when a relatively weak move higher to a new local top was accompanied by a decrease in volume. This greatly weakens any bullish indication and actually makes the implications relatively bearish. And the subsequent action showed that the beginning of January 2017 was the time when a local top was formed, followed by a prolonged period of declines, not by a rally. The analysis of volume in crude oil could have paid off.

Volume in USD

The U.S. dollar is mostly traded over the counter, and we don’t have the volume numbers for the USD Index. However, we can look at a U.S.-dollar ETF, for instance at the U.S. Dollar Index Bullish ETF (UUP). A weekly chart is shown below. The volume of UUP is a proxy for the volume in the U.S. dollar.

Invesco DB US Dollar Index Bullish Fund

The beginning of 2017 saw the UUP going down strongly. This move transpired on high volume, and one week saw the highest volume reading in months. All of this during a strong move down. This was a bearish indication. We then saw a relatively weak correction. This move took place on a decreased volume. There were two indications: depreciation on increased volume and appreciation on decreased volume. Both of them were bearish and it turned out that the move up in February marked a local bottom and the beginning of very strong declines which lasted for another year or so.

Volume in Bitcoin

We can analyze the volume in Bitcoin by looking at the volume shown by its proxy, the Bitcoin Investment Trust (BGTC). Once again, let’s take a look at the weekly chart.

Bitcoin Investment Trust OTC

There are two situations that stand out in this chart. The first one is May 2017 when GBTC formed a local top on extreme volume and during a day of appreciation. The declines that initially followed were accompanied by a weaker volume and this could have been viewed as a bullish sign. More appreciation followed in the second half of the year. This appreciation ended with a top formed on an increased volume on the day of depreciation. This could have been viewed as a bearish sign. And in the subsequent months, more declines followed. The analysis of volume could have provided Bitcoin traders and investors with signs.

Volume in Stocks

The stock market provides interesting details regarding the volume analysis. This is very visible on the long-term chart of the S&P500 index (SPX).

S&P 500 Large Cap Index

The 2009 bottom was formed on extreme volume in stocks. Both the volume of the move down and of the move up were remarkable. The higher one was the one for the appreciation. This was a classic case of an extreme low, when there’s “blood in the streets.” And  it was reinforced by the fact that appreciation was seen on even more pronounced volume. So, a new extreme low, one formed on extreme volume was followed by a rebound on even more extreme volume. This was a bullish sign. And as it turned out, this was the precise point when the declines ended and the new bull market was about to begin. The volume could have provided valuable hints.