The total number of times an asset was exchanged over a specific period is known as the trading volume. Typically, it is measured for exchange-traded assets such as commodities, futures, options, bonds, and stocks. The trading volume covers the total value of an item bought or sold during the transaction and the number of transactions.
Depending on the selected period, volume charts will be plotted. For instance, you can see an hourly chart, a daily chart, or a weekly chart. In contrast to the daily report, which is released after market closure and is more precise, hourly volume reports are typically just approximations.
Every exchange between a buyer and a seller of that asset influences the total volume count of security. Every time a buyer consents to purchase what a seller offers at a specific price, there has been a single transaction. A day’s volume is set at five transactions if there are only five transactions in a given day.
High trade volume: What does that mean?
Many traders are in the market, which is indicated by a high volume. While this doesn’t always imply that all traders will take the same positions, it usually means that a trend exists.
A high trade volume reveals whether the momentum is still present. The market price typically goes in the same direction as the trading volume. However, this does not necessarily imply that high volume equals high prices because there can also be many short-sellers.
Regarding liquidity, high trading volume is considered a substantial advantage because more buyers and sellers are available on the market, increasing the likelihood of finding a counterparty for your trade at your preferred price. Tighter spreads are also associated with greater liquidity.
Low trading volume: what does it mean?
Less liquidity will result from low volume, which suggests fewer buyers and sellers on the market. Limited liquidity increases your chance of losing money if the market moves against you because it can leave you in positions you can’t get out of. In the stock market, less liquidity can result in wider bid-ask spreads.
The volume tells us what?
A higher volume of trading in a particular stock suggests that investors are considering buying or selling it. Increases in volume and price indicate investors’ optimism about a company’s future. When volume rises, but the price falls, it can mean that more investors are eager to offload their positions. Investors consider volume to facilitate trading, mainly when selling.
How to determine the stock volume
The total number of shares traded for the day, including both, buy and sell orders, is used to calculate volume in the stock market. Finding stock volumes is relatively easy because every transaction is visible to the public in an exchange’s order book.
Volumes greatly influence the movement of stocks. For example, volumes can turn bullish or bearish markets around, so investors must be vigilant and well-informed. The article provides several techniques and indicators that can be used to understand volumes and volume-based trade calls.
Before investing in a company, it’s vital to consider other aspects in addition to volume. Investors can significantly increase their chances of building money from the stock market by thoroughly selecting all relevant factors.