In stock market volume represent number of unit share change hands for stocks or future contract over a specific time period. Volume breakout trading system is very popular in stock market but it can be a loss making trading system for you if you use only volume parameters for trading or investing.
These are the factors which make volume based trading system not reliable for trading or investing.
1. Generally volume breakout happens after positive or negative news flow in the stocks.These news can be real news or fake news no one check the quality of news which leads to large volume in stock. It provides exit routes for big investors by some positive news flow.
2. Volume is not an indicator because it is not based upon any calculation of data points. Volume only represents number of unit share change hands for stocks.
3. Volume breakout trading system is not a leading indicator. It is a lagging indicator .
4. Volume only represent the interest of investors. It can be positive or it can be negative. We need to verify it before invest or trade.
5. Volume breakout trading system represent the movement in the stock. We need to validate the movement whether is sustainable or not before trade.
6. Big investors never trade large quantity in single day. So any rise in volume not guarantee us that big player is buying the stocks.
7. Low volume doesn't mean the change in trend . It generally happens when there is less interest of the investors.