Hexun Investment Advisor Zhan Na: Is a Price Drop Better with Decreasing Volume or Increasing Volume? 90% of Retail Investors Got It Completely Wrong

March 20th, Hexun Investment Advisor Zhana said, "Do you look at trading volume? When stocks fall, is it better to see decreasing volume or increasing volume? Today, in three minutes, I will help you thoroughly understand the deeper logic behind trading volume, and master a different perspective on volume and price analysis. If you find it useful, please like and save this—it’s definitely helpful in practice!

Let’s start with a real case: a stock rises sharply from a high level and then continues to decline, with ample time and space for adjustment. Observing the trading volume, during the decline, volume keeps shrinking drastically, and the stock price keeps falling, with trading volume continuously decreasing. In this kind of trend, is the bottom near? Most people might be unsure. Don’t worry, let’s break down the logic: for stocks that decline like this, which is better—shrinking volume during decline or increasing volume?

When the stock price falls with increasing volume, it indicates significant disagreement in the market. Increasing volume means there are both buyers and sellers—some are bullish, some are bearish—leading to high transaction volume. Don’t be fooled by the falling price; increasing volume essentially shows that buyers are more willing to enter, actively absorbing the stock, which pushes up the volume. Conversely, during a decline with shrinking volume, it indicates that most traders agree on the decline: many want to sell, but few want to buy, so trading continues to shrink. The bears remain bearish, and the bulls are reluctant to enter; buying interest almost disappears. Returning to the earlier case, even after the stock has fallen for a long time and volume keeps shrinking, no one is willing to take the position. In this ongoing decline with shrinking volume, it’s very unlikely to truly bottom out—even if volume shrinks to the extreme, the bottom may not arrive.

Does this logic still apply during an upward trend? For example, a stock that previously rose sharply, then begins to pull back at a high level, with volume also decreasing. Which is better—shrinking volume during decline or increasing volume? If you understand the previous logic, the answer should be clear: during an uptrend, a decline with shrinking volume is actually better. This kind of volume contraction indicates that market participants are reluctant to sell, not because no one wants to buy, but because they simply can’t buy the stock—selling pressure is light. Such stocks usually have limited room for correction and are more likely to stabilize.

But here’s the key question: if volume keeps shrinking during a decline and there’s no increase in volume to signal a reversal, can the stock truly bottom out? Obviously not. Short-term pullbacks during an uptrend cannot be sustained by shrinking volume alone; they will continue to oscillate and grind sideways. To restart the upward move, there must be a volume increase after the consolidation—preferably a bullish candle with high volume. This indicates that selling pressure has been fully digested, and the bulls only need a small force to push the price higher. It’s a typical signal that the correction has ended and the stock is ready to attack again.

Therefore, there is no absolute good or bad between shrinking volume declines and increasing volume declines; it must be judged in conjunction with the trend and position—this is the core logic of trading volume!