Price-volume divergence is important because it shows when price and trading volume move in opposite directions. This can signal a possible change in the market trend. For example, if price is rising but volume is falling, it may mean the price rise is weak and could reverse soon. Traders use this to make better decisions about when to buy or sell.
What Does Price-Volume Divergence Indicate?
Price-volume divergence indicates that the current price trend may not be strong. When price goes up but volume decreases, fewer traders support the rise. When price falls but volume decreases, selling pressure might be weakening. This helps traders spot early warnings of trend reversals or slowdowns.
How Can Traders Use Price-Volume Divergence?
Traders watch for divergence to decide if they should enter or exit trades. It helps avoid false breakouts or fake trends. Combining divergence with other indicators gives stronger signals. It improves timing for buying low and selling high.
What Are Common Examples of Price-Volume Divergence?
A common example is when a stock price makes new highs but volume is lower than before. This could signal the uptrend is losing strength. Another is when price drops but volume also falls, showing the selling is slowing down and the price may soon rise.
Why is Volume Important Alongside Price?
Volume shows how many shares are traded and reflects the strength behind a price move. Without volume, price changes might not be reliable. Volume confirms trends, signals strength or weakness, and helps avoid false moves. Price-volume divergence highlights when price moves may not be supported by enough trading activity.
How Can Indian Traders Benefit from Price-Volume Divergence?
Indian traders can use price-volume divergence to better read stock movements in the volatile Indian market. It helps avoid entering trades on weak signals. Combining it with local market news and other tools improves trade success. This technique makes trading more precise and reduces risks.
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