Breakouts and volume
When judging a breakout, the breakout candle's volume is compared with the average volume of recent candles. Volume clearly above that average shows high participation in the move beyond the zone. The close still decides the breakout; volume is information that goes alongside it.
Why look at volume on a breakout?
A breakout is measured by a candle closing beyond the zone's far edge; that measure is covered on the breakouts and the close page. Volume looks at the same moment from another angle: how much was traded as price moved beyond the zone?
Moving beyond the zone on heavy trading shows broad participation at those prices. A move on light trading may be the work of only a small part of the market. In both cases the breakout may have happened on the close; volume describes how much participation came with that close.
How to measure breakout volume
- Choose a comparison period. A common choice is the average volume of the last 20 candles before the breakout candle. 10 or 50 candles are used too; state the number you chose.
- Work out the ratio. Divide the breakout candle's volume by that average: relative volume = breakout candle's volume ÷ average volume of the last 20 candles. Above 1 means volume is above average. There is no universal threshold for a clear rise; some treat 1.5 or 2 times the average as clearly higher.
- Wait for the candle to close. The volume of an open candle is still growing. Working out the ratio on the closed candle measures both the volume and the breakout itself correctly.
- Look at the next candles. How volume and price behave in the candles after the breakout shows whether the follow-through keeps its participation.
Volume on the breakout candle
When a candle closes above a resistance zone's upper edge, volume can draw different pictures.
Close above the zone, volume clearly high
Participation in the move beyond the zone is high. It can be read as the breakout being accepted. Limit: high-volume breakouts can come back too.
Close above the zone, volume below average
The move came on light trading. It can be read as a weaker breakout. Limit: low-volume breakouts in quiet hours or at the weekend can carry on as well.
Wick above the zone on high volume; close inside the zone
A lot was traded beyond the zone, but those prices were not accepted by the close. This is a common form of false breakout; the details are on the false breakout page.
What it shows, what it does not prove
What it shows
- How much participation the breakout candle had compared with recent candles
- Whether the breakout happened in a quiet period or during heavy trading
- Together with the next candles, whether the follow-through keeps its participation
What it does not prove
- That the breakout will hold; high-volume breakouts can come back too
- That a low-volume breakout is bound to fail
- Whether the volume was buying or selling, or who traded
The MarketLevelMap view
How it relates to zones
Breakout volume makes sense together with reading the zone as a band. First check whether the close came beyond the band's far edge; only then is volume weighed. A high-volume candle that closes inside the band is not a breakout but a test with heavy trading at the zone.
When price leaves a range through one of its edge zones, the move often follows a stretch in which volume quietened during the range. So comparing breakout volume with the range's own volume level is a useful starting point.
Often confused with
For general information only. Not investment advice.Last updated: