The Trading Volume or volume is the number of shares or contracts which indicate the total activity of a value or market over a certain period of time. Trading Volume is an important technical indicator that an investor uses to confirm a trend or reverse trend. The volume gives an investor an idea of the price action of a security and the purchase or sale of a guarantee.
The volume is simply the total number of buyers and sellers who exchange stocks over a certain period, usually one day. The larger the volume, the more the percentage is active. The volume data for an action is available on your online trading screen. Most financial institutions have data carrier data.
The volume of transactions can help an investor identify the dynamics of a stock and confirm a trend. As the Trading Volume increases, prices generally move in the same direction. In other words, if a value increases further in an uptrend, the security volume must also increase and vice versa.
For example 1: if the stock volume for the day was 100 shares, which means that 100 shares were sold by someone and bought by someone on that day.
Volume as such cannot be attractive information. But try to combine the volume with the support levels and the resistance – you get the current picture.
For example 2: Say Stock A ltd broke a “resistance level” and further increased. In addition, since it was broken at a critical level, you expect to increase it even more in the near future.
For example 3: assume that ABC or XYZ company has increased its price by 10% last month. An investor is interested in the company and would like to buy 100 shares. It performs a fundamental analysis of the company and sees its profits and sales grow steadily over the past year. However, you are not sure that the stock will continue in this bullish trend and will be reversed.
Here the analysis of the operating volume is very useful. The investor sees that there has been a steady increase in the volume last month. He also notes that it has been the highest volume of the ABC or XYZ company in the last two years, and the stock continues in the upward trend. This tells the investor that ABC is growing and that the trend will continue to increase. The increase in volume prompts the investor to acquire 100 shares of ABC or XYZ.
The Trading Volume may also indicate when an investor should take profits and sell collateral due to low activity. If there is no relationship between the trading volume and the price of a security, this indicates a weakness of the current trend and a possible reversal.
In short, the volume is a critical factor in the Technical Analysis. Each level of support and resistance is invalid unless supported by a corresponding volume. The volume should move with the trend. If prices move in an uptrend, the volume should increase (and vice versa). If the previous relationship between volume and price movements deteriorates, it is usually a sign of weakness in the trend. For example, suppose ABC or XYZ has increased its upward trend for another five months and has increased by 70% in six months. The investor sees ABC or XYZ shares still in an uptrend and continue to hold onto their stock. However, the stock continues to rise in the coming weeks, but with a drop in volume. This tells the investor that the bullish uptrend in ABC or XYZ society is beginning to lose momentum and may end soon.