# Understanding Low Volume Pullbacks: Key Indicator for Traders

## What Is a Low Volume Pullback?

A low-volume pullback is a [technical correction](https://www.investopedia.com/terms/t/technical_correction.asp) toward an area of support that occurs on lower-than-average volume. In technical analysis, a low-volume pullback is significant to [weak longs](https://www.investopedia.com/terms/w/weaklongs.asp) locking in profits rather than a [reversal](https://www.investopedia.com/terms/r/reversal.asp). In contrast, high-volume pullbacks may indicate a near-term reversal. Traders leverage these pullbacks to inform their trading strategies, using tools like on-balance volume (OBV) and technical indicators.

### Key Takeaways

*   Low-volume pullbacks are technical corrections toward support areas that occur on below-average trading volume.
*   These pullbacks often indicate that weak longs are taking profits, but the long-term trend usually remains intact.
*   High volume pullbacks may signal a possible near-term reversal and increased volatility.
*   Traders can use indicators like on-balance volume (OBV) to detect divergences between trend and volume.
*   It's important to analyze volume, chart patterns, and technical indicators to determine if a pullback is temporary or a signal for a longer-term reversal.

## How to Interpret Low Volume Pullbacks in Trading

Frequent moves against a [trend](https://www.investopedia.com/terms/t/trend.asp) with low [volume](https://www.investopedia.com/terms/v/volume.asp) are normal fluctuations and usually insignificant. A large volume spike against a trend may signal that smart money is exiting and a reversal is near. These significant moves lower are known as high-volume pullbacks.

## Strategies for Trading Low Volume Pullbacks

Many technical traders will try to enter a position on the short-term weakness seen in a [low-volume pullback](https://www.investopedia.com/articles/active-trading/051415/rewards-trading-stocks-low-volume.asp) because it increases the [risk/reward ratio](https://www.investopedia.com/terms/r/riskrewardratio.asp) as stop losses are closer to major [support levels](https://www.investopedia.com/terms/s/support.asp). Long-term investors may also take these opportunities to add to their positions at a lower price and decrease the cost basis of their overall long positions, which creates an opportunity for more upside.

Traders will use indicators, such as the [on-balance volume](https://www.investopedia.com/terms/o/onbalancevolume.asp) (OBV), to find situations where the trend and the volume are diverging. If the trend is moving higher and volume is decreasing, traders may look for a potentially longer-term reversal to occur since there are fewer longs responsible for pushing the stock higher. High-volume [pullbacks](https://www.investopedia.com/terms/p/pullback.asp) are also a sign that the market may be ready to reverse. In these instances, long traders may exit their positions, and long-term investors may lock in some profits.

Traders often look at many different factors when determining if a pullback is temporary or long-term. While volume is a reliable indicator, it's also important to look at chart patterns, such as key support and [resistance levels](https://www.investopedia.com/terms/r/resistance.asp), and technical indicators, like the [relative strength index](https://www.investopedia.com/terms/r/rsi.asp) (RSI) or [moving average convergence-divergence](https://www.investopedia.com/terms/m/macd.asp) (MACD), to confirm these sentiments.

## Real-Life Case Study: Low Volume Pullbacks in Action

Here's an example of a series of low volume pullbacks in the SPDR S&P 500 ETF (SPY):

![Image](https://www.investopedia.com/thmb/3HJjAoK1TYBtuLiSaNiGyAley8I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_LowVolume_Pullback_Definition_Jun_2020-01-e70fea9e10fb419e8cb21de8f9830fc0.jpg)

**

The chart shows three low-volume pullbacks occurring within a significant [uptrend](https://www.investopedia.com/terms/u/uptrend.asp) before a high-volume pullback that signaled a more prolonged reversal in price. Each low-volume pullback was followed by a subsequent resumption of the overall trend, as weak traders took profits off the table before more bullish investors entered the market.

In comparison, the high volume pullback lasted several days, and the [ETF](https://www.investopedia.com/terms/e/etf.asp) became more volatile as investors questioned the long-term trend.

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