In stocks, the volume would refer to the number of shares of a security traded between its daily open and close. As a day trader, there will be many things you need to monitor on your thinkorswim platform. Volume is definitely one of the indicators you want to keep an eye on and used to analyze the market before entering into a trade. The higher the volume during a price move, the more significant the move, and the lower the volume during a price move, the less significant the move. Volume is also used to indicate trends, which is very important to the day trader.
Volume is counted as the total number of shares that are truly bought and sold during the trading day. It is also known as a measure of the total turnover of shares. Each ticket represents a trade and is counted towards the total volume. While the same shares may be traded back and forth multiple times, the volume is counted on each transaction. We will get into more on the concept of volume, technical analysis, and where to locate volume on your chart.
The dollar volume is the total value of the shares traded. Dollar volume is calculated by trading volume multiplied by price. For example, if ABC has a total trading volume of 100,000 shares at $5, then the dollar volume is $500,000. Money managers use dollar volume metrics to determine whether a stock has enough liquidity to support a position. Dollar volume can also be used to get an idea of money flow when scanning for a stock breaking out or breaking down that is creating the highest dollar volume during the day.
When many traders look at volume, they want to see how hard it could be to get rid of their shares if they were to sell. 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.
Technical analysis focuses on the study of price and volume. Day traders believe past trading activity and price changes of a stock can be valuable information of 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 has a tendency 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.
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 trade. It is simply another tool you add onto your tool belt to help you along your journey. The MK program has helped several traders use this tool and a tested strategy to become successful traders.
Volume on thinkorswim
Now you have an understanding of what volume is and how to use volume for trading. You need to know where to find the volume on your thinkorswim platform, or you won’t be able to apply it. Take a look under your 1 min chart, you will see an area in between before you get to your 5 min chart. The area will have what appears to be blue bars; that is the volume shown that is being actively traded. The higher the blue bars are, it indicates market strength; and shows how heavy the volume is. The lower the blue bars are, the lower the volume is. You can use your mouse to hover over the blue bars, and you will see the numbers either going up or down to keep track as the market is open. This can be seen in the image below.
While you are entering a trade, this is important because once you hover over, you can 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, which 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.
Summary: What Is Volume in Stocks?
You’ve now learned the concept of volume, what it entails, technical analysis, and where to locate volume on your thinkorswim platform. Remember, identifying volume alone won’t get you the results you are looking for; as there are other indicators. Trade volume combined with a tested strategy, it will be a game changer. My goal has always been to help as many day traders 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 can teach you a strategy that if you put in the work and practice, you will be successful for at least 80% if not more of your trades.
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.
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