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Whale Trading

Volume Strategy: Reading the Strength Behind Price Moves

In this article, we organize the basic structure of Volume-based strategy.

Assuming you have already seen in Volume Basics:

  • What volume means,
  • Why you should look at "Price + Volume" together,
  • How volume changes in trend sections, range sections, and breakouts.

Based on that content, here we will view volume as:

Not simply "A lot came out/A little came out," but A filter to check "Is there real power behind this price move?"

and create a simple strategy structure and checklist.

1. How to Use Volume in This Strategy?

In this article, volume plays only three major roles.

  1. Trend Health Check

    • How well volume is maintained while the trend continues,
    • Whether volume decreases/increases after a sharp drop/rise.

  2. Breakout Reliability Check

    • When breaking important Support and Resistance levels, whether volume increased distinctly compared to usual,
    • Or if it just quietly passed over and returns to the box.

  3. Exhaustion Possibility Check

    • After extreme volume + long candle appears for a very short time,
    • Whether it is a structure where a pullback comes immediately.

In summary, Volume in this strategy is "Auxiliary equipment to check if power is loaded in the price move."

Rather than a standalone entry signal, it is realistic to use it while viewing it overlapping with Trend Following Strategy, Support and Resistance Pattern, Breakout vs Fakeout, etc.

2. Basic Framework: Trend / Range / Breakout / Exhaustion

Volume strategy ultimately starts with distinguishing these four situations.

  1. Trend

    • When price proceeds steadily in one direction based on MA-60 Strategy,
    • Whether volume does not die completely and is relatively more alive in the rising (or falling) section.

  2. Range

    • In a section going back and forth between top and bottom based on Support and Resistance,
    • Whether volume is at average level or gradually decreasing.

  3. Breakout

    • At the moment of breaking the top/bottom of the box or important S/R,
    • Whether volume increases distinctly and crosses the level.

  4. Exhaustion Move

    • After a long rise/fall, sudden volume explosion + extreme candle appears,
    • And whether it is a structure where power drains from immediately after that.

If you distinguish these four, even with the same candle pattern:

  • "Is it a healthy trend continuation?"
  • "Is it just noise inside the range?"
  • "Is it a real breakout?"
  • "Is it a last-minute exhaustion signal?"

Interpretation becomes much easier.

3. Trend Section: "Healthy Trend vs Weak Trend"

First, let's look at an Upward Trend example.

3-1. Environment Setup

  1. Daily Trend Direction

  2. Basic Pattern of Volume

    • Whether volume is alive above average in rising swing sections,
    • Whether volume relatively decreases in correction (falling/sideways) sections.

If it's this structure:

"Participants join when it goes up, and trading decreases and rests during correction"

It is highly likely to be a relatively healthy trend.

Conversely:

  • If volume continues to decrease even though it rises,
  • Or if volume increases more every time it corrects downwards,

"Is volume being thrown from the top?"

It is a signal to suspect this.

3-2. Simple Application

  • If you are already doing Trend Following Buy based on MA-60 Strategy,

  1. If the appearance of volume drying up continues in the rising swing section → Approach new additional entry conservatively.

  2. If a large rise occurred but volume is rather less than before → Consider partial profit taking/position reduction based on Risk Reward.

In a Short trend, you can view the above content in reverse.

4. Breakout: "Real Breakout vs Fake Breakout"

Breakout strategy is an area that goes very well with volume.

4-1. Setting: Box Top/Bottom + Volume

  1. Find noticeable Box Top/Bottom on Daily/4-hour based on Support and Resistance.

  2. If a structure where price is gradually crowding towards the top/bottom is seen based on Triangle Pattern, Wedge Pattern, view it as a "spot that can explode largely someday."

  3. At this time, note if volume:

    • Is generally average level or gradually decreasing inside the box,
    • Increases distinctly only at the moment of breakout.

4-2. Long Example: Top Breakout

Based on Top Breakout (Long):

  1. Breakout Candle

    • Whether a close based finish that clearly crosses the box top appears,
    • Whether volume at this time is definitely higher than the recent box section average.

  2. Retest Status

    • There are cases where it shoots up immediately and ends,
    • But if you are a beginner, it is easier to understand to wait for Top Level Retest (Support Conversion) as seen in Breakout vs Fakeout.

  3. Entry, Stop Loss, Target

    • Entry: Long entry after confirming support at retest.
    • Stop Loss: Below top level + based on ATR Indicator, allow about 1.0~1.5 ATR margin.
    • Target:
      • 1st: Recent swing high or next S/R of higher timeframe,
      • Always check if minimum 1:2 R/R or more can be met based on Risk Reward.

4-3. Warning on Fake Breakout

In a state where volume has not increased significantly:

  • If it slightly crosses the top/bottom
  • And immediately rolls back into the box

It is highly likely to be a Fakeout.

In this case:

  • Rather than unreasonably chasing in the breakout direction,
  • You can even consider a trade in the opposite direction like Breakout vs Fakeout strategy.

5. Exhaustion Pattern: Suspecting "Is it the Last Firework"

A part that many people find interesting in volume strategy is exactly the Exhaustion Move.

5-1. Typical Characteristics

Upward Exhaustion Example:

  1. After Long Rise

    • Rising swings have already occurred several times,
    • Based on MA-60 Strategy, Price is quite far above MA-60.

  2. Volume Explosion + Extreme Candle

    • Suddenly volume larger than any recent section explodes,
    • After a long bullish candle (or candle with long upper shadow) appears,
    • From the very next candle, buying pressure does not continue and power drains.

  3. Subsequent Pullback

    • Price quickly retraces previous support/resistance zones based on Support and Resistance,
    • Or structure where volatility calms down after increasing rapidly based on ATR Indicator.

If this pattern is seen, rather than new chase buying:

  • Partial profit taking/reduction of existing Long position,
  • Reducing leverage/increasing cash proportion from the perspective of Risk Management

It is natural to consider such conservative actions first.

Downward Exhaustion Pattern can be thought of in reverse (Panic volume explosion + Attempt to rebound sharply after long bearish candle, etc.).

6. Common Mistakes in Volume Strategy

6-1. Thinking "High Volume is Unconditionally Good"

  • Just because volume is high does not mean it is always a good trend signal.
  • Like the exhaustion pattern, it could be volume explosion coming out with last-minute overheating.

Always:

  • At what location (S/R, above/below trend)
  • In what structure (Trend continuation, Breakout, Exhaustion) the volume came out must be viewed together.

6-2. Ignoring Average Volume Differences by Time Zone

  • Short timeframes like 1-minute/5-minute are greatly influenced by short-term events like news, liquidation, scalping,
  • Daily/4-hour reflect movements of larger participants (Swing, Position Traders) more.

Therefore:

  • In this strategy, basically Daily + 4-hour combination,
  • We premise viewing volume centering on Swing/Position rather than short-term scalping.

6-3. Ignoring Price Structure and Viewing Only Volume

  • If you view excluding price structure (Support and Resistance, Chart Patterns) saying "Volume is high so something will happen,"
  • Direction, stop loss, and target setting all become ambiguous.

Volume must always be interpreted on top of price structure.

7. Volume Strategy Checklist

Finally, let's organize questions worth asking yourself when utilizing volume.

  1. "Does the current section look like a healthy trend from the perspective of Trend Following Strategy?"

    • Is volume alive when going up, and does volume decrease during correction?

  2. "At the moment of breaking important S/R level, did volume increase distinctly, or is it a quiet breakout?"

  3. "Is the recent volume explosion closer to the start/strengthening of a trend, or closer to Exhaustion?"

  4. "Is there consistency when viewing this volume signal together with Support and Resistance Pattern, Breakout vs Fakeout, Candle Patterns?"

  5. "Even if volume looks good, are R/R and loss limit reasonable based on Risk Reward?"

To summarize the Volume Strategy:

"Auxiliary filter to check if there is real power behind the price move, and if that power is likely to continue"

It can be seen as such.

  • In trend sections, distinguish Healthy Trend vs Weak Trend,
  • In box/breakout sections, divide Real Breakout vs Fake Breakout,
  • In overheated sections, if you use it to check Exhaustion Pattern Possibility,

Together with Trend Following Strategy, Chart Pattern Strategy, Risk Management, it will be a "Basic Volume Strategy Axis" fully usable in practice.