How to read stock charts? What do the red and green colors of the Trading Volume represent?

When watching the market, I always can't figure out what those red and green trading volume bars are trying to tell me. After some research, I finally understood this fundamental yet often misunderstood indicator in the stock market.

The True Meaning of Trading Volume Colors

The colors of the trading volume histogram are actually quite intuitive, but many people misunderstand them. Red trading volume indicates that the closing price of the day is higher than the opening price, meaning that the stock price has risen on that day. Conversely, green trading volume indicates that the closing price of the day is lower than the opening price, meaning that the stock price has fallen.

This is consistent with the color logic of candlesticks, but it has nothing to do with whether the stock is rising or falling! Sometimes you will see that the candlestick is red, but the corresponding Trading Volume is green; this is because a red candlestick only indicates that the closing price is higher than the opening price for the day, and does not necessarily mean that the stock price has risen compared to the previous day.

Why are the colors of the candlestick and Trading Volume sometimes inconsistent?

This issue has puzzled me for a long time. It turns out that a red candlestick only indicates that today's closing price is higher than the opening price, but it may be lower than yesterday's closing price. For example, if yesterday's closing price was 100 dollars, today's opening price was 95 dollars, and the closing price was 98 dollars. Although today is a red candlestick (because 98 > 95), the stock price has actually fallen (because 98 < 100).

The Market Forces Behind Trading Volume Colors

The color of the Trading Volume provides us with a perspective to assess the market's buying and selling power comparison:

• Red Trading Volume High: Indicates strong buying power, with bullish sentiment prevailing.
• High Green Trading Volume: Indicates strong selling power, with bearish sentiment prevailing.

Some trading platforms may use different colors, for example, some Hong Kong or US stock platforms may use green to indicate an increase and red to indicate a decrease, which is something to be particularly aware of.

Other Important Signals of Trading Volume

Aside from color, the size variation of the Trading Volume can also tell us a lot of information:

1. Price Increase with Volume Increase: The stock price rises and the Trading Volume expands, indicating strong bullish sentiment.
2. Price Drop with Increased Trading Volume: When the stock price declines and the Trading Volume increases, it indicates strong bearish sentiment.
3. Price Increase with Decreased Trading Volume: The stock price rises but the Trading Volume decreases, which may signal a weakening trend.
4. Price Drop with Decreased Trading Volume: A decline in stock price accompanied by a reduction in trading volume may signal a weakening downtrend.

Personal Opinion

I think simply looking at the color of the Trading Volume is not very meaningful; what’s more important is to combine the price trend with the changes in Trading Volume. Sometimes I see some people in the market overinterpreting the color of the Trading Volume, even treating it as the sole basis for buying and selling decisions, which is quite dangerous.

Trading Volume is just one of many technical indicators and cannot be analyzed in isolation from other factors. I once made a wrong judgment just by looking at the Trading Volume, resulting in significant losses. Now, I combine various indicators, including candlestick patterns, moving averages, RSI, and others for a comprehensive analysis to more accurately grasp the market pulse.

Remember, the color of the Trading Volume only reflects the relationship between the opening and closing prices of the day, and not the overall rise and fall of the stock. Investment decisions should never be based solely on this simple indicator, but should consider multiple factors comprehensively.