Volume and core indicators

Volume: the fuel behind the move

Volume is the number of shares traded in a period. Price tells you where the market went; volume tells you how many participants took part in getting there. Every share bought was sold by someone, so volume is not "buyers versus sellers" — it measures the intensity of interest and disagreement.

Rules of thumb:

• A move on rising, above-average volume is backed by many participants — often institutions, whose buying takes days to complete.
• A move on falling or below-average volume is backed by few. It can continue, but it reverses more easily.
• A volume spike at the end of a long move (a "climax") often marks exhaustion: the last buyers or sellers have acted.

Relative volume

Absolute numbers say little: 2 million shares is huge for a small company and a quiet day for a mega-cap. Compare with normal instead. Relative volume (RVOL) = today's volume ÷ average volume (often over the last 10–50 days). RVOL of 1 is a normal day; 2–3 means something is happening (earnings, news, a breakout); below 0.7 is quiet.

Intraday, compare with the same time of day: the first and last 30 minutes of the session always trade more.

Over the ten candles before the breakout, average volume was 40. The breakout candle traded 120 — RVOL 3× — and closed at $61.80, well above the ~$60 resistance. That is a confirmed breakout. Look at the end of the chart too: price makes a new high at $64.80, but on volume of 40 and 32. The move is slowing; for someone holding the stock it is a reason to tighten the stop, not to panic.

RSI: measuring momentum

RSI (Relative Strength Index) compares the size of recent up moves with recent down moves, usually over 14 periods, and scales the result from 0 to 100. Simplified: RSI = 100 − 100 ÷ (1 + average gain ÷ average loss). Above 50, gains have dominated; below 50, losses.

The classic reading: above 70 is "overbought", below 30 "oversold". These words mislead beginners. "Overbought" doesn't mean "too expensive, about to fall" — it means price has risen fast.

In this strong rally RSI went above 70 and reached about 85. Selling because "RSI is over 70" would have meant getting out early. In a strong uptrend RSI often moves between 40 and 80+: pullbacks that hold around 40–50 are normal, and readings above 70 confirm strength. In a downtrend the range shifts lower (roughly 20–60), and "oversold" readings can persist.

RSI in a range

RSI works best when the market is moving sideways.

Here price swings between support at ~$40 and resistance at ~$46.50. At resistance RSI reads ~75; at the first touch of support it reads 27. That combination — a low RSI at a support level — is a reasonable buying setup. But look at the second touch: RSI only falls to about 35, so a rigid "buy below 30" rule gives no signal — yet the level holds anyway. The lesson: the level comes first, the indicator second.