What does a drop in volume typically indicate?

A drop in volume typically indicates a lack of conviction among investors. When trading volume decreases, it suggests that fewer participants are willing to buy and sell at prevailing prices, which can lead to uncertainty about the direction of the market. This lack of engagement often signifies that investors may be hesitant to commit to positions, reflecting doubts about the underlying strength of a move, whether it be up or down.

In contrast, increased volume often correlates with strong moves in either direction, indicating that a greater number of participants are engaged and expressing their beliefs about future price directions. Therefore, a decrease in participation through lower volume can often be seen as a signal that the current price trend may not have strong support or that investors are waiting for more clarity before taking action.