Volume spikes: exhaustion or breakout?

Volume spikes: exhaustion or breakout?

Sometimes you'll see one volume bar that's two or three times taller than the bars around it. That's a volume spike — a moment where participation suddenly explodes. It always means something important happened. But what it means depends entirely on context. The same massive bar can signal a breakout starting OR a move ending. Reading which is the skill.

Scenario one — breakout. Price has been ranging sideways for days or weeks. Volume has been quiet. Suddenly price punches through the top of the range and a giant volume bar prints. That's a breakout. The spike is the market waking up and committing in a new direction. These are the moves that often have the most follow-through, because the spike is telling you new buyers are showing up and meaning it.

Scenario two — exhaustion. Price has been trending for weeks. Suddenly there's a massive volume bar at a new high (or new low). That's often a blow-off — everyone who was going to buy has bought, and the spike marks the last of them piling in. The next few candles roll over. The same big bar that means commitment at the start of a move can mean capitulation at the end.

What to actually do: don't react to a spike in isolation. Look at the chart around it. Has price been quiet for a while, then broke out? Treat the spike as confirmation. Has price already moved a lot, and now this spike happened at a new extreme? Be careful — it might be the move ending. Wait one or two more candles before committing capital. The follow-through tells the truth.

Recap: a volume spike means something happened. Breakout if it's at the start of new movement. Exhaustion if it's at the end of an extended move. Context decides.