Volume Spikes & Blow-Offs

Extreme increases in volume along with extreme rises or falls in price can sometimes be interpeted opposite to regular volume analysis:

Sharp increases in price and sharp increases in volume can mean bulls have been exhausted, all buyers have bought and there is no one else but sellers; the result is bearish.
Sharp decreases in price and sharp increases in volume can mean that everyone that wanted to get out of the stock or future has; therefore, there are only buyers left - bullish sign.

The chart below of eBay (EBAY) stock illustrates a volume spike, defined as at least two times the average volume:

Volume extremes occur at bottoms as well, which is shown below in the chart of the Nasdaq 100 QQQQ's:

Outline:

1. Volume

2. Volume Spikes & Blow-Offs

A strong understanding of volume is an absolute necessary addition to price analysis. Knowing when price increases or decreases have firm support or knowing when either buyers or sellers have been exhausted is extremely useful when trading. Another way of visualizing volume is Volume Rate of Change (see: Volume Rate of Change) and the Volume Oscillator (see: Volume Oscillator).