When analyzing stock price trends recently, I noticed that many people are asking a question: why do some stocks rise, but their trading volume actually shrinks? This really involves a very important technical analysis concept— the relationship between price and volume.

In plain terms, the price-volume relationship refers to the interaction between stock price and trading volume. Many people only watch price up or down, but ignore the changes in trading volume behind it. This often leads to mistakes. Today, I’ll sort out the typical price-volume patterns I’ve observed over the past few years.

First, let’s talk about the situation that’s easiest to overlook—price rising with volume shrinking. The stock price is going up, which looks good, but the trading volume is shrinking. What does that mean? Simply put, it means buying interest is decreasing. The usual reason for price rising while volume shrinks is that market participants gradually lose interest in this rally—possibly a technical rebound rather than a real trend. For example, like Tesla in early 2017: the stock kept making new highs, but trading volume was falling, and later a correction did indeed occur. Alibaba had a similar situation back then as well.

Another case is price flat with volume shrinking. The stock price repeatedly fluctuates within a narrow range, while trading volume steadily declines. This typically reflects the market falling into a wait-and-see mode, with no clear direction for buying or selling. Both Nvidia and Boeing have shown this kind of sideways consolidation with shrinking volume.

The most dangerous is a drop accompanied by a surge in volume. The stock price falls sharply, but trading volume spikes significantly. This usually indicates panic selling. During the 2020 pandemic outbreak, hotel stocks like Hilton experienced such a plunge. Interestingly, though, sometimes a high-volume drop can actually be an opportunity to buy at the bottom. For instance, in 2023, after Estee Lauder released earnings that missed expectations, the stock plunged, but later it rebounded—those who dared to buy during the panic made money.

A decline with shrinking volume is relatively milder: the stock price is falling, but trading volume is decreasing, which shows the market isn’t panicking—it's simply lacking buying support. Netflix and Facebook have both seen this kind of movement.

Finally, there is price falling with volume increasing. The stock price drops, but trading volume rises. This could suggest continued downside, or it could be a signal that a bottom is forming. The key lies in how you interpret it. At the end of 2018, Apple’s stock price fell sharply along with high trading volume—it was indeed risky at the time. But Blackberry’s situation in 2012 was different: although the stock was declining and volume was increasing, it later became a very good bottom.

Understanding the underlying causes of these price-volume relationships is very helpful for making trading decisions. In the end, the reason prices rise while volume shrinks comes down to market enthusiasm cooling off. And falling prices with rising volume may indicate that the market is searching for a bottom. It’s not enough to just look at price movements—you must combine them with trading volume to judge the market’s true participation level. A strong trend is often accompanied by sufficient volume, while a weak trend will show signs of volume energy shrinking.

So next time you look at a stock’s trend, don’t just stare at the candlesticks—also check what the trading volume is saying. When you combine the two, you’ll get a clearer market signal.