Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Volume

What it is:

Volume represents the total number of securities traded during a certain period of time.

How it works (Example):

Volume records the number of transactions taking place during a period of time. It is a direct measure of liquidity in a market. The major exchanges report volume figures on a daily basis, both for individual securities and for the total amount of trades executed on the exchange. 

For example, let's assume a buyer of stock purchases 500 shares from a seller. The volume then increases by 500 shares for that period of time.

Volume also reflects pricing momentum. When market activity -- i.e., volume -- is low, investors anticipate slower moving (or declining) prices. When market activity goes up, pricing typically moves in the same direction.

Why it Matters:

Next to price, volume is likely the most closely watched indicator in technical analysis because it conveys so much information.

Technical analysts believe that volume can serve as a warning signal as to whether a stock is on the verge of breaking into upside territory (high volume) or into a downside trend (low volume). Low volume of a security, even if it's rising in price, can indicate a lack of conviction among investors. Conversely, high volume of a particular security can indicate that traders are placing their long-term confidence in the investment.

Volume is incredibly important to traders. Without volume, it becomes more difficult to buy or sell securities when you want to, and at the price you want. 

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