What Is Volume in Stock Trading?
Volume refers to the number of shares of stock traded. It pertains to individual stocks and to stock markets. For example, when the volume on the New York Stock Exchange on a particular day is said to be 1.7 billion shares, it means that 1.7 billion shares of all companies listed on the NYSE traded that day in aggregate.
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Volume Reporting
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Volume is reported on a daily, weekly and monthly basis (usually in conjunction with corresponding daily, weekly and monthly charts). In addition, there is the average daily volume for the past 50 days.
Volume Creates Liquidity
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The more shares of a stock are traded, the easier it is to buy and sell it, and the more efficient the pricing.
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Volume as an Indicator
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If you multiply the number of shares traded by the share price, you get the total dollar amount that changed hands on a particular day. For example, if a $10 stock trades 50,000 shares in a day on average, that's only $500,000; if a $50 stock trades 1.7 million shares a day, it's $85 million. A large dollar volume suggests institutional involvement in a particular stock.
If a stock trading only 50,000 shares a day all of a sudden starts trading 200,000 shares, it's an indication that something has changed that has prompted increased investor interest.
Volume Confirms the Trend
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Volume usually goes with the trend. If a rising stock goes up on high volume and down on low volume, it confirms the upward trend.
Volume Imbalances
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On a regular day, the number of shares offered for sale and sought for purchase is more or less equal. But there are situations when the number of shares offered for sale greatly exceeds the number of shares investors are looking to buy, and vice versa. These imbalances create price dislocations in which a stock may gap up or down so that the buy and sell orders can be balanced.
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References
- Photo Credit financial charts image by Chad McDermott from Fotolia.com
