Volume is the amount of an asset or security that changes hands over some time, often over a day. For instance, the stock trading volume would refer to the number of shares of security traded between its daily open and close. Trading volume and changes in volume over different periods are significant inputs for technical traders. Every transaction that takes place between a buyer and a seller of security contributes to the total volume count of that security. One transaction occurs whenever a buyer agrees to purchase what a seller is offering for sale at a certain price. If only five transactions occur in a day, the volume for that day is set at five.
The volume of trade numbers is reported as often as hourly throughout the current trading day. These hourly reported trade volumes are estimates. A trade volume reported at the end of the day is also an estimate. Final actual figures are reported the following day. Investors may also follow the number of changes in a contract’s price, as a substitute for trade volume. This is because prices tend to change more frequently with a higher volume of trade.
Volume tells investors about the stock market’s activity and liquidity. Higher trade volumes for specified security mean higher liquidity and better order execution. It also creates a more active market for connecting a buyer and seller. When investors feel uncertain about the direction of the stock market, futures trading volume tends to increase, which often causes options and futures on specified securities to trade more actively. Volume overall tends to be higher near the market’s opening and closing times, and on Mondays and Fridays. Volume tends to be lower at lunchtime and before a holiday.
Some traders use technical analysis, a strategy based on stock price, to make decisions about when to buy a stock. Technical analysts are primarily looking for entry and exit price points. Volume levels are important because they provide clues about where the best entry and exit points are located. Volume is an important indicator in technical analysis because it is used to measure the relative significance of any market move. If the market makes moves a large amount during a given period, then the strength of that movement either gains credibility or is viewed with skepticism based on the volume for that period. The higher the volume during the price move, the more significant the move is considered in this form of analysis. On the other hand, if the volume is low then the move is seen with less importance.
Day traders believe past trading activity and price changes of a stock can be valuable information for future price movement. This analysis is used to identify trading opportunities and looks for patterns as well. I’m sure you have heard the saying history tends to repeat itself. Day traders believe prices even when the market is choppy will show trends regardless of what time of day you are looking at the chart. The stock price is more likely to continue a past trend than move erratically. In day trading you will hear “Re-tested” and that is referring to the price coming back to a price it was at either earlier that day or a previous day. This one indicator alone won’t be what you need to be successful in your trading. It is simply another tool you add to your tool belt to help you along your journey.
Why is Volume Important
Stocks with low volumes can be difficult to sell because there is little buying interest. Low-volume stocks can be very volatile because the spread between the ask and the bid price tends to be wider. Stocks with a high volume and a rising price are usually easier to sell at a desirable price. This is why volume is so important no one wants to be left holding stocks they were anticipating getting rid of. They also don’t want to sell and take a loss; the anticipation is growing your account not losing capital.
When you are entering a trade, it is important to hover your mouse over the bar chart volume to see if it looks like the trade is still heading in the direction you had anticipated. For example, if you entered into a call that meant you thought the market price was going up. Then you started to notice the volume started to drop this could be an indicator the market price was going to drop. Incorporating this with your strategy you can then make an informed decision to stay or exit the trade.
Bar charts also make it easier to identify trends in volume. When the bars on a bar chart are higher than average, it’s a sign of high volume at a particular market price. By examining bar charts, traders can use volume as a way to confirm a price movement. If volume increases when the price moves up or down; it is considered a price movement with strength. If traders want to confirm a reversal on a level of support–or floor–they look for high buying volume.
Summary: What is Stock Volume
As you can see stock volume is very important for entry and exit of trades. It works as a technical analysis to help and guide traders like a compass would if you were lost. The trading volume of a stock reveals to investors how many shares are being transacted. Investors combine this data with other information in their investigation into whether a stock price is likely to increase or decrease. I can teach you how to day trade like the top 10% without a complicated strategy or difficult technical indicators, even if you are a beginner.
My goal has always been to teach as many day traders to achieve their personal financial goals, whether they are novice traders or experienced traders. The MK VIP training has plenty of resources to help you get started on reaching your day trading goals. I teach the working class how to earn $10,000 a month through day trading. I help my students avoid the challenges I faced when I first became a day trader. I can show you how and where to look for volume and how to use that valuable tool. As of now, MK Financial LLC is already the #1-day trading coaching business in the US in just one year. You are just a click away from learning what you need to become a day trader with any amount of capital and take your life and salary to the next level.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
Feel free to check out other FREE educational resources to help guide you as you begin your new journey to financial freedom.
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