Volume spike refers to an increase in the volume of shares or contracts traded in security within a short period of time. Volume spikes show the increased interest in the security from the buyers or the seller’s side.
Why are volume spikes significant in technical analysis?
Volume is one of the many important aspects of technical analysis to understand the performance of a security. They provide significant insights into the demand-supply function of the market. A sudden volume spike indicates a steep increase in the buying or selling pressure or a potential trend change.
How to interpret a volume spike?
A volume spike during an uptrend indicates strong buying pressure and continuity of the uptrend. On the other hand, a volume spike during a downtrend signifies the strong selling pressure and continuity of the downtrend.