Gann Volume Rules

Introduction

After formation, time and resistance levels, Gann called volume of sales the fourth very important factor. He said volume is the real driving power behind the market and shows whether supply or demand is increasing or decreasing.

Gann's Rules for Volume

Rule 1: Heavy volume at the end of a big advance

At the end of a long bull campaign or a rapid advance in a stock, volume usually increases sharply. This marks the end of the move, at least temporarily. After a sharp decline on heavy volume, if the next rally comes on lower volume, it shows the stock has made its final top.

Rule 2: Dull sideways movement, then a breakdown

If a stock makes a second lower top, becomes dull and moves sideways for some time, and then breaks down on increased volume, a further decline is likely.

Rule 3: Low volume at bottoms

After a long decline, when a stock is reaching bottom, volume should decrease and the daily range should become narrow. This shows that selling is exhausted.

Rule 4: Secondary reaction on low volume

After the first sharp advance from a bottom, the stock usually has a secondary reaction. If volume decreases on this reaction and increases on the next advance, the new uptrend is confirmed.

Example: Volume at a Top (Illustrative)

A popular PSU stock rises from Rs 80 to Rs 200 in a year. In the final two weeks, volume is three times the normal average as the stock jumps from Rs 170 to Rs 200.

• It then falls to Rs 175 on heavy volume.
• It rallies to Rs 190 on much lower volume.
• Gann's reading: the final top is likely in at Rs 200. The rally on low volume is a selling opportunity, not a buying one.

Example: Volume at a Bottom (Illustrative)

A stock falls from Rs 1,200 to Rs 700 over nine months. In the last month, daily volume dries up and the price moves in a narrow Rs 690 to Rs 720 range.

• Then it rises to Rs 780 on rising volume (first sharp advance).
• It reacts to Rs 735 on falling volume (secondary reaction).
• It crosses Rs 780 on higher volume. Gann would consider the new uptrend confirmed.

Volume and Time Together

Gann noted that volume becomes most useful when combined with time cycles and resistance levels. Heavy volume at a major resistance level and at a key time period is a strong top signal.

Delivery Volume in India

Indian traders also watch NSE delivery percentage. Rising delivery volume on up days near a bottom suggests genuine buying, supporting Gann's volume rules.

Track Volume on GoPocket

Add the volume indicator to your charts on the GoPocket app. Use the live market depth screen to see buying and selling quantities waiting at different prices. At suspected tops, watch for heavy volume with little price progress.

Frequently Asked Questions

Does heavy volume always mean a top?

No. Heavy volume at a breakout from a long base is bullish. Heavy volume after a long, fast rise is often a top.

Is low volume good or bad?

Low volume on reactions in an uptrend is healthy. Low volume at the end of a long decline suggests a bottom.

Key Takeaways

• Volume shows the real strength of supply and demand.
• Heavy volume after a long advance often marks a top.
• Low volume and narrow range after a long decline suggests a bottom.

Disclaimer: Illustrative examples only.