Recently, I’ve been pondering a question: why do stocks sometimes rise with little volume, while other times they require massive trading to push the price higher? In fact, this reflects the changing psychology of market participants.

The essence of trading is simple: buyers believe the price will go up in the future, sellers believe it will go down; both parties agree on a certain price level before a trade occurs. In other words, trading volume is the degree of disagreement between bulls and bears. The greater the disagreement, the larger the volume; the smaller the disagreement, the lower the volume. But there’s a key point often overlooked — the size of the volume ultimately depends on the weaker side of the bulls or bears. For example, at a certain price level, there might be 2,000 lots of buy orders but only 1,000 lots of sell orders; the final traded volume is 1,000 lots because the selling side’s strength limits the transaction size.

We can understand this more clearly by looking at some market phenomena. In a scenario of rising prices with little volume, the holders simply don’t want to sell; the bulls hold an absolute advantage, and the disagreement is minimal. Even if the price keeps rising, the trading volume remains gentle. Conversely, if during the rise suddenly volume increases, it indicates that more and more holders are willing to sell, and the disagreement between bulls and bears is fiercely contested. In this situation, the price may still be rising, but it could already be nearing exhaustion.

The same applies to downtrends. When volume shrinks, it’s not because the sellers lack strength, but because buyers are simply insufficient. The disagreement between bulls and bears is small, so the probability of continued decline is high. However, if during a decline volume suddenly spikes in the later stages, it indicates that disagreement is beginning to widen, and the downtrend may be coming to an end. It’s important to note that volume increase early in a decline doesn’t necessarily mean a reversal, because at that stage, the disagreement mainly stems from panic selling by retail investors.

When analyzing volume, you should also ask yourself — who is disagreeing with whom? We need to stand on the side of independent institutions rather than follow retail investors’ herd mentality. The method is quite simple: observe where the disagreement occurs. Large trading volume at the early stage of a decline is usually a bad sign, because it’s mainly the conservative retail investors panic-selling. But if, in the later stages of a decline, the market shows clear disagreement leading to increased volume, that’s often a good sign, because disillusioned retail investors rarely lead trend reversals.

There’s a stock market proverb that fits well: when the market is turning sour, a decline with no volume is hell; when the market is bullish, an upward move with no volume is heaven; during market turbulence, a contraction to extremely low volume followed by an increase is a sign of a good trend ahead. Essentially, trading volume is a direct reflection of human nature in the market — every disagreement between bulls and bears is vividly expressed through fluctuations in volume.