Volume is an important measure of strength. Volume can refer to the number of trades completed. There are several different types of strategies that work with volume and take it into account in the investment process. For any occurring trade, the market needs to produce a buyer and a seller. A transaction occurs just when buyers and sellers meet and is referred to as the market price. From an auction perspective, when sellers and buyers become particularly active at a certain price, it means there is a lot of volumes. Analysts use bar charts to determine the level of volume quickly, and they provide easier identification of trends in volume. Bars being higher than average is a sign of high volume or strength at a specific market price. By these means, analysts can use volume to confirm a price movement. If volume rises when the price moves up or down, it is considered a price movement with strength.
Kang, Kim, Lee have found evidence, that unsigned out-of-the-money call (put) trading volume, which is publicly observable data, predicts positive (negative) future stock returns. They also found evidence that the option volume measure predicts the occurrence of material, corporate events such as takeover announcement or earnings surprise. Their finding suggests that the information contained in option markets are relatively slowly incorporated into the stock price. Lee and Swaminathan say that past trading volume provides information about the level of investor interest and indirectly, about the imminence of price reversals and predicts both the magnitude and persistence of future price momentum.
In conclusion, if traders need to confirm a reversal on a level of floor or support, they have to look for high buying volume. Vice-versa, if traders are looking to confirm a break in the level of support, they look for low volume from buyers. If traders need to confirm a reversal on a level of resistance, or ceiling, they look for high selling volume. Vice-versa, if traders are looking to confirm a break in the level of resistance, they look for high volume from buyers.
Kang, Kim, Lee (2018): Stock Return Predictability of Out-of-the-Money Option Trading Lee, Swaminathan (1998): Price Momentum and Trading Volume