Recently, I saw some friends get confused by the relationship between volume and price in the stock market. Clearly, stocks are still rising, but trading volume is getting smaller and smaller. Should they keep holding or sell quickly? Conversely, some chase in and end up buying at the top, becoming the bagholder. Actually, behind these confusions, they all point to the same thing—the volume-price relationship.

Simply put, the volume-price relationship of stocks is the dialogue between price and trading volume. The size of the trading volume behind the stock's rise or fall reflects the market participants' level of agreement with this trend. Knowing how to interpret the movement of volume and price can basically improve your judgment accuracy.

Let's start with the most common scenarios. If during the early stage of a price increase, the trading volume also expands, this is usually a sign that the bulls are truly launching, and it's a good buying opportunity. But if the price is falling and the volume keeps decreasing, be cautious—no one wants to buy in, and the downtrend may not be over yet. Especially when a large volume suddenly appears at the end of a decline, it often means the last batch of people has surrendered, and the bottom may be near.

Another situation that people love and fear is called "heavenly volume and heavenly price." When the stock price hits a new high at a high level, and trading volume also reaches a record high, it looks like the bulls are invincible. But in reality, this is often the main force selling to retail investors at the peak of popularity; the bulls are exhausted and a reversal could happen at any time. Conversely, "earthly volume and earthly price" is another matter—when the stock price shrinks to the long-term bottom, and the market is extremely cold, but this often signals that long-term investors are starting to observe.

The situation of volume increasing while price remains flat is also common. When at the bottom, the stock price is stagnant but volume begins to rise, it’s usually the main force quietly accumulating, buying while suppressing the price. But if the same volume increase occurs at a high level, beware—it's very likely the main force is offloading, creating fake active trading to attract retail investors.

The most headache-inducing is divergence between volume and price. Under normal circumstances, when the stock price rises, volume should also increase; when the price falls, volume should shrink. But when these two are inconsistent, it’s a warning sign. For example, a decline with increasing volume is often a precursor to a price rise—this seems contradictory, but it depends on the scenario. If it happens at the start of a decline, it indicates panic selling is emerging, and the downtrend is just beginning. But if it occurs at the end of a decline, with the stock already fallen significantly and suddenly surging in volume, it could be the last drop before the bottom appears.

Another common divergence is volume shrinking while price rises. When the stock hits a new high but volume keeps decreasing, it means no one wants to chase the price anymore—only the long-term holders are reluctant to sell. This situation often appears at the peak of a wave, and you should watch out for a possible M-top reversal. If this no-volume rebound occurs during a downtrend, be even more cautious—it’s not genuine buying interest, just a panic rebound, and after the rebound ends, the decline may continue.

Ultimately, volume is the momentum of price, and price is the reflection of volume. The same volume-price pattern appearing in different positions can mean completely different things. The key is to judge where the stock currently stands. When you get used to viewing volume and price together, you’ll be closer to understanding the market’s true face than those who only watch the stock price movements. Next time you analyze the market, spend a few extra seconds observing changes in volume—this habit will help you navigate the market more steadily.