Dear Friends,

In the vast jungle known as the stock market, are you a real hunter? Or are you the hunted?

What is the very first thing that we all look at every morning when we open our trading charts?

We do look at only one thing: "Has the price gone up? Or has it gone down?"

However, the most crucial concept that anyone learning "Price Action" must grasp right from the start is this:

In trading, price is merely an illusion it is nothing more than a shadow. The true entity that casts this shadow is Volume. For a trader, this concept of Volume is of great importance.

Generally speaking, Volume refers to the total number of shares that have changed hands within a specific timeframe or over the course of a single trading day.

Many people understand that the volume is only to this limited extent. However, I have frequently observed that a great deal of confusion exists among the people when it comes to understanding Volume beyond this basic definition.

Therefore, I am writing this post with the specific aim of making this concept as easy to understand as simple as possible At the same time, since the explanation is somewhat detailed, you will be able to fully grasp it only if you read through it patiently.

So, let us begin with an example to help us understand Volume.

Let's imagine there is a 10-acre plot of agricultural land in your hometown. For many years, the market price for this land has remained steady at $ 5000 per acre. Then, one day, a local resident suddenly negotiates a deal to purchase a single acre of that very same land from another individual for a price of 2.5 million USD.

Now, what will the other residents in the town think and construe? They will think, "The land that used to sell for USD 5000 has suddenly skyrocketed to 2.5 million! That means our own land will also soon be worth millions as well," and they will begin to have such high hopes. This represents the typical psychological mindset of the general public.

But do you know what a truly a individual would do? They would ask themselves: "That land just changed hands for 2.5 million. But why did the price suddenly surge to such a high level? Is there a specific underlying reason for this?" People often look at a situation and ask, "How many people were truly involved in business transactions there?"

If you dig a little deeper and investigate, you might find that the individuals who bought and sold the land were actually just two members within the same family.

In other words, it was a simple transaction orchestrated solely between themselves, that designed to artificially inflate the land's value and sell it off by deceiving the locals with a fabricated story that a major foreign company was about to set up operations there.

Only a single transaction, a "Low Volume" deal would have actually taken place there in the selling. Believing this fabrication, many newcomers would end up purchasing the land at a very high price, only to suffer financial losses in the end.

Now, let's consider a different scenario involving that very same land. If the land that was originally valued at 5000 USD. Suppose 50 prominent business tycoons from out of town arrive and purchase the entire 10 acres of land available there, each paying 25000 USD per acre. In this instance, 50 distinct transactions would have occurred, involving the exchange of multiple millions. This constitutes a "High Volume Deal."

Now, if we were to ask: Was the initial transaction involving with just those two individuals the real business? Or was the business conducted by those 50 prominent figures is the real business? The answer is undoubtedly that the business conducted by those 50 major players represents the true market activity.

The exact same phenomenon occurs in the stock market. The "single share" or the "few hundred shares" that we purchase are merely drops in the ocean.

No matter how eagerly retail traders like us buy shares, we simply do not possess the power to quickly drive up a stock's price from every angle. 

Such a feat requires the infusion of tens of thousands of millions of capital.

Who, then, possesses the capacity to bring such massive sums of money into this market?

Corporate entities, banks, Institutional and foreign investors. These are the entities we refer to as "Smart Money."

When these players enter into the market, they do so with the utmost secrecy. Much like the attitude of someone declaring, "I'm a tough guy, too," they operate as if to say, "Today, I..." They would never go around boasting to anyone, "I am about to buy Reliance shares worth >500000 USD."

However, no matter how hard they try to keep a low profile much like trying to hide the tuft of hair on one's head, there is one thing they simply cannot conceal in the market: That is the- Volume.

This is because the sheer number of shares totalling to hundreds of thousands that they purchase while the price is rising shows as a massive, towering structure within the volume bars displayed beneath the price chart.

If the price is trending upward and the volume is simultaneously surges to tower-like proportions, it signifies that the "whales" or "Smart Money" have begun their hunt in that space.

Alternatively, if the price is rising while the volume remains flat, hugging the very bottom of the chart, it implies that the whales are absent; only the "small fry"—retail traders like us are playing around, merely waiting to get caught in the net.

This is precisely why Volume plays such an important role in the Price Action analysis.

Let us explore how we can interpret this concept using a technique known as VSA (Volume Spread Analysis).

In the market, the interplay is between Price and Volume reveals four key "emotional states" to us:

1) Strong Bullish Move:

The price of a stock is climbing rapidly, and concurrently, the volume bars beneath the chart are also steadily rising.
This represents a highly healthy state for the market. At this juncture, buyers are driven by an extraordinary blend of confidence and greed. Large institutional investors compete fiercely with one another to pour capital into the stock, driven by the mindset: "No matter how high the price climbs, I simply must own these shares."

At this stage, "Smart Money" is operating at full strength. By aligning ourselves with them, we too can participate without any fear...

Let's continue to learn from this in the future posts.