Recently, while analyzing stock trends, I found that many people do not have a deep understanding of the phenomenon of "rising price with shrinking volume." In fact, there is quite interesting market psychology hidden behind it.

First, let's talk about what the volume-price relationship means. Simply put, it is the interaction between stock price and trading volume. When the stock price moves, the trading volume also responds to the market participants' attitude. This interaction helps us see clearly whether the market is truly rising or just a fleeting moment.

Speaking of rising price with shrinking volume, this is actually a very warning sign. The stock price is rising and looks good, but the trading volume is gradually decreasing. What does this imply? It means that buying interest is waning, and the market's enthusiasm for this rally is cooling down. I have seen Tesla's trend in early 2017, where this situation occurred—stock price rising but trading volume declining, later proving it was just a technical rebound and not a real trend. Alibaba also had similar cases.

When rising price with shrinking volume occurs, it usually reflects increasing market hesitation. In simple terms, there are no new buyers stepping in to support. This volume-price relationship often indicates that the short-term trend may weaken, and investors should be alert.

Besides rising price with shrinking volume, there are other typical volume-price combinations worth noting. For example, flat price with shrinking volume—stock price moving sideways within a certain range while trading volume gradually declines. This indicates the market is in a wait-and-see mode, lacking a clear direction. Nvidia and Boeing have both experienced this sideways volume contraction.

The opposite situation is a volume spike during a decline. Stock prices fall rapidly, but trading volume surges significantly. This usually indicates panic selling. During the outbreak of the pandemic in 2020, Hilton experienced such a sharp drop. Interestingly, sometimes a volume spike during a decline can provide a bottom-fishing opportunity. Estée Lauder announced worse-than-expected earnings in 2023, leading to a sharp drop in stock price accompanied by increased volume, but subsequent trends proved that this panic was excessive.

There is also volume contraction during a decline—stock prices fall but trading volume decreases. This may indicate that market sentiment is relatively calm or that the market is waiting for something. Netflix and Facebook have both experienced this trend.

Finally, there is a situation where the price falls but volume increases—price downtrend with rising volume. This may suggest a continued decline, but it could also be a sign of a market bottom. At the end of 2018, Apple experienced a significant drop due to slowing iPhone sales, accompanied by increased trading volume. Blackberry's case is even more obvious: during a long-term decline, trading volume kept increasing, which later became a sign of a reversal.

Therefore, the core of observing the volume-price relationship is understanding the attitude of market participants. When rising price with shrinking volume occurs, pay special attention to whether it is a true trend or a false breakout. Combining other technical indicators and fundamental analysis can lead to more reliable judgments. Making decisions solely based on volume-price relationships can be risky, but ignoring them can also cause you to miss important signals.