[[Start here]] → [[expose to return drivers|drivers]] → [[strong stocks beat weak stocks|strong beats weak]] → volume --- When a stock suddenly trades far higher volume than usual, it’s rarely random. It means someone either has new information, or new conviction. That surge in attention often pulls prices upward in the short term. It’s a predictive indicator. ## What the research says Studies on US stocks by Gervais[^1] in the “High Volume Premium” found a consistent pattern: - After **unusually high trading volume**, prices tend to **rise over the next few weeks.** - After quiet, low volume periods, they often **drift down.** - Surprisingly, the strongest results appear **when prices haven’t already made a big move** - so volume itself carries useful information. ![[high-volume-return-premium.png]] These effects are seen across all sizes of company, and occur irrespective of whether there has been news on the stock. ## Why it works When many investors suddenly start trading a stock, or an institution does in big size, it suggests either a broader crowd is taking notice, or there’s more conviction due to unique insights. As confidence and liquidity grows - due to the crowd or a large position being built - others may notice it and prices may rise. The opposite also holds, thin trading can signal uncertainty, less interest and less buyers, and thus weaker price action. ## Rules of thumb Technical analysts do say that price action is primary, but volume is an extremely valuable confirmatory factor. So watch out for: - A breakout or rally with **rising volume** - it’s more trustworthy than one without. - A rally on **low volume** - it may fades if attention wanes (though price is primary). - During sideways trends, **watch for volume drying up**, then surging again as a move begins - that combination can mark the start of a new uptrend. ### See also * [[volatility often contracts before the best breakouts]] * [[strong shares break out of bases on high volume]] * [[big jumps on earnings announcements predict future drift]] *NB: In the study, “high volume” meant a stock traded far more than usual - in simple terms, one of the highest volume days of the past 50, or the most traded week out of the past 10 weeks. Researchers then tracked how those stocks performed over the next month.* [^1]: [[Gervais - The High Volume Return Premium]]