The topic of this article is what volume is when referring to the stock market.Volume has a pretty simple definition: volume is the total number of shares of a particular company that were bought and sold during a certain period of time.Daily volume is the amount that a stock was bought and sold during a day; most volume indicators take the average daily volume over a certain amount of time, like a month or a year.You can then see if a stock’s performance on a certain day indicates a drastic change in the shock by comparing that day’s volume with the average daily volume of the stock.So if the average daily volume of one of your stocks is 455 shares per day, and you notice that the volume has jumped to 7800 shares, then you know that something big is looming on the horizon.
Volume is an important indicator to hold against bids and asks.Bids are simply an indication of what some one is willing to buy a stock. They haven’t actually bought the stock, but they are telling you a hypothetical number.The ask tells you the absolute lowest price at which some one would be willing to sell a stock.So the bid and the ask show that people are interested and how much they are interested, but they are not actually measures of concrete activity.On the other hand, you have volume.Volume tells you precisely how much people are actually buying and selling a stock.Volume is a concrete measure of actual exchange-of real buying and selling.
Volume is also an indication of whether or not a stock is liquid or illiquid.Liquidity measures how easy it is to buy or to sell a stock when you want to.If there is a lot of trading of a particular stock, then it is easy to sell it and easy to buy it.It is highly liquid, and it has a high volume.IF a stock has a low volume-there is very little buying and selling going on, then it is considered illiquid.Generally speaking, highly liquid stocks have very low transaction fees because trading them is so common.Illiquid stocks have pretty drastic price changes, either up or down, when a large number of the stocks are bought or sold.
Volume is an important number to look at when you are technically analyzing a stock.Volume is important as a confirmation number when you compare it with general trends and the patterns on your charts.Volume is particularly important when you compare it with price.Let’s say that you see that a particular stock has moved up in price.Has it also had a strong rise in volume?If there is a rise in price but not in volume, then the price change is relatively insignificant and not as relevant.However, if you notice that volume is increasing at a pretty significant rate, and the price is also increasing or decreasing, then you know that something important is going to happen with that stock.It’s up to you to determine whether or not you should then buy or sell. Comparing stock volume and price can help you decide if a stock that has been pretty low is going to have a reversal.If the price jumps, let’s say, 10% in one day, before you get too excited about the stock, then you should look at the volume.If the volume is high also, then chances are that you have a real trend reversal on your hands.You can tell if a stock trend is weakening if the relationship between price and volume starts to break down.If the price keeps rising but the volume is fading, then the trend is ending.