Hexun Investment Advisor Dai Guofei: The essence of trading volume can be summarized into four mnemonic phrases

On March 29, Hexun Investment Advisory consultant Dai Guofei said that trading volume in essence can be summed up into four lines of a mnemonic: if you truly understand it, you can easily read 90% of volume and momentum fluctuations. The core value of volume and momentum lies in validating a breakout at key locations; it cannot be simply summarized by just increasing volume to enter or decreasing volume to exit. First, the change in volume and momentum before and after a breakout: before breaking through a key level, volume should rise modestly; after the breakout, volume should ideally contract. Taking the previous high pressure zone as an example: as price approaches the pressure level, volume increases step by step; when the breakout occurs, trapped-share holders are fully swapped out through turnover; afterward, the rally meets less resistance, and shrinking-volume upward movement becomes the norm—money is able to reach a consensus, and the market’s continuity is stronger. Second, the volume-price performance after a breakout: after shrinking-volume and rising price follow the breakout of an important pressure level, the trend may continue; if the rally happens on expanding volume, be cautious—if volume surges but the price stalls, consider exiting. In a certain case, after breaking a key pressure level, if there is continuous pushing higher but the trading volume does not expand significantly or even shrinks in a stage-like way, it indicates a strong short-term momentum characteristic; however, if there is a sudden massive spike in volume at a high level and the price then stalls, you must be highly alert—it may be a fund’s washout or a distribution of shares. In the short term, the probability of a sideways pullback is high, so do not chase. If you see volume falling while price rises—an instance of a volume-price divergence—that is a common top signal, requiring a calm response. Third, validating the authenticity of breakout volume and momentum: encountering resistance with expanding volume means it is a genuine breakout; a light and easy breakout with no volume is a false breakout. If the price makes new highs for the current phase but there is no recent high volume accompaniment, the foundation of such a breakout is not solid and the risk of a pullback is high; only when, at key pressure levels, volume surges in a concentrated manner and the breakout happens with uninterrupted momentum is it an effective breakout. Fourth, identifying volume spikes that are traps: volume expansion should occur at resistance; if there is an inexplicable blowout in volume, there must be something suspicious—either the main funds are orchestrating buy-sell order matching to lure participants in, or it shows that the chips are becoming loose. A healthy trend should release a large volume at key resistance levels, driving trapped-share holders to exit and new capital to enter, completing sufficient turnover. Conversely, during a downtrend, if a big bullish candle appears with heavy volume but the price does not reach key resistance, it is often a bull-trap or the main fund’s self-rescue; afterward, there is still risk of further sell-off pressure. Make sure to stay vigilant, especially when volume appears in non-key areas.