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Identifying divergences between price and volume indicators.
Volume divergence occurs when price and volume move in opposite directions. It's one of the earliest warning signs that a trend is losing steam and may be preparing to reverse or stall.
Key insight: Healthy trends have volume flowing in the direction of price. When price makes a new high but volume decreases, fewer traders are participating in the move. This shrinking participation often signals the trend is exhausting itself.
Volume divergence works across all timeframes but is most reliable on the daily and 4-hour charts. On lower timeframes, volume noise can create false divergence signals.
Bearish volume divergence: Price pushes to new highs with progressively lower volume bars. Each new high has less conviction behind it. This is distribution hiding behind rising prices.
Bullish volume divergence: Price drops to new lows but volume declines with each push lower. Selling pressure is drying up. Watch for a volume spike on a reversal candle to confirm the turn.
Volume confirmation vs. divergence: Always compare the current move's volume to the previous move. If the latest rally to a new high has 40% less volume than the prior high, that's a clear divergence regardless of absolute volume levels.
This indicator works best when combined with price action analysis. Never trade indicators alone - always confirm with the chart.
Indicators confirm what price action shows. They don't replace it. Never trade based on an indicator signal alone. Always combine with chart structure, pattern recognition, and volume analysis.
The Academy teaches when to use this indicator, when to ignore it, and how to combine it for high-probability setups.
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