Positive correlation between price and volume development

Positive correlation between price development and volume development is a sign of strength. It shows high buy interest near tops in the price chart, and low sell interest near price bottoms. This indicates that investors who already own the stock and those who consider buying both believe that the price will rise.

Correlation between price and volume development is considered an important indicator. It is often used alongside trend analysis and other indicators based on the stock price.

The chart shows positive correlation between price development and volume development when the stock is in a rising trend. This volume development confirms the positive mood among investors and indicates that the rising trend will continue.

There can also be positive correlation when a stock is in a falling trend. It then signals that the strength of the falling trend is waning and a reversal may happen in the near future.

The following applies to positive correlation between price and volume development:

• Strengthens a buy signal
• Weakens a sell signal
• Indicates that investors are positive and the rising trend will continue
• Indicates that sellers are passive, a falling trend is ending and a trend reversal is near

Thus we want to see a positive correlation between price and volume development for stocks we own or will buy. Positive correlation indicates a healthy stock with a positive development of the investors’ view of the stock. Such a stock is indicated to continue rising.