David Ryan on the Importance of Using Volume

David Ryan is a three-time U.S. Investing Champion and one of William O’Neil’s most successful protégés. His results were not built on prediction or complexity, but on understanding how stocks behave before they make their biggest moves.

In Market Wizards, Ryan explained one of the most important volume principles in trend trading:

“When a stock that has been moving up starts consolidating, you want to see volume dry up. You should see a downtrend in volume. Then when volume starts picking up again, it usually means the stock is ready to blast off.”

This is a subtle but powerful concept.

Rising stocks need rest. Healthy leaders pause to digest gains. When that pause happens on declining volume, it tells you something important. Selling pressure is limited. Institutions are not rushing for the exits.

The real signal comes next.

When volume begins to expand again after a quiet consolidation, it often marks renewed institutional demand. That is when strong trends tend to resume.

Quiet pullbacks suggest strength.
Loud breakouts confirm it.

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VICR: A Real-Time Example of Ryan’s Principle

VICR is a textbook example of exactly what Ryan was describing.

First, the stock makes a strong advance on heavy volume. That initial surge is the market’s first clue that institutional demand has entered. Big volume on the way up is rarely accidental.

After that move, VICR begins to consolidate, and volume dries up sharply. Selling pressure fades. The stock tightens. Higher lows begin forming on the right side of the chart.

That quiet action is not weakness. It’s digestion.

Then volume starts to come back in as the stock tightens further and pushes higher. That renewed volume signals fresh demand building on top of the original accumulation. Eventually, you see another explosive move higher on massive volume.

The first big volume surge was the indicator.
The next surge was the confirmation, and by then the move was already underway.

The key takeaway is this.

That first big up-volume surge often acts as a preview of what the stock is capable of later. It’s an early signal that institutions are willing to pay higher prices, and when volume returns after a quiet consolidation, those same players are often still involved.

This is volume price analysis.

When price and volume line up, the market is usually very clear about what comes next.

Entry Examples

Three different buy points that offered different risk to reward profiles, yet all would have worked. The key is that volume moved back in, marked on the chart as signal volume, before the major price expansion on heavy volume.

The first entry was taken before volume returned. The second waited for the volume signal. The third came later, but price still offered a tight risk to reward setup.

There is no right or wrong approach here. It simply comes down to what fits your style. Some traders may even enter earlier with a wider stop before the higher low is fully formed during consolidation. It all depends on your risk tolerance and execution style.

Buy 1 Risk / Reward:

Buy 2 Risk / Reward:

Buy 3 Risk / Reward: