Loading the player...

What is 'Volume'

Volume is the number of shares or contracts traded in a security or an entire market during a given period of time. For every buyer, there is a seller, and each transaction contributes to the count of total volume. That is, when buyers and sellers agree to make a transaction at a certain price, it is considered one transaction. If only five transactions occur in a day, the volume for the day is five.

BREAKING DOWN 'Volume'

Volume is an important indicator in technical analysis as it is used to measure the relative worth of a market move. If the markets make a strong price movement, then the strength of that movement depends on the volume for that period. The higher the volume during the price move, the more significant the move.

Fundamental analysis is based on company performance and is used to determine which stock to buy. Technical analysis is based on price and is used to determine when to buy. Technical analysts are primarily looking for entry and exit price points, and volume levels provide clues about where the best entry and exit points are located.

Volume Trends Confirm Strength

Volume is one of the most important measures of strength for traders and technical analysts. Put simply, volume refers to the number of contracts traded. For any trade to occur, the market needs to produce a buyer and a seller. A transaction occurs when buyers and sellers meet and is referred to as the market price. From an auction perspective, when buyers and sellers become particularly active at a certain price, it means there is a lot of volume.

Analysts use bar charts to quickly determine the level of volume. Bars also provide easier identification of trends in volume. When bars are higher than average, it is a sign of high volume or strength at a particular market price. In this way, analysts use volume as a way to confirm a price movement. If volume increases when the price moves up or down, it is considered a price movement with strength.

Example

If traders want to confirm a reversal on a level of support, or floor, they look for high buying volume. Conversely, if traders are looking to confirm a break in the level of support, they look for low volume from buyers. If traders want to confirm a reversal on a level of resistance, or ceiling, they look for high selling volume. Conversely, if traders are looking to confirm a break in the level of support, they look for high volume from buyers.

RELATED TERMS
  1. Volume Of Trade

    The total quantity of futures contracts bought and sold during ...
  2. Up Volume

    A stock volume that closes at a price higher than the previous ...
  3. Down Volume

    A stock volume that closes at a price lower than the previous ...
  4. Volume Analysis

    The examination of the number of shares or contracts of a security ...
  5. Net Volume

    A term in technical analysis that represents a security's uptick ...
  6. Low Volume Pullback

    A technical correction toward an area of support that occurs ...
Related Articles
  1. Trading

    Interpreting Volume For The Futures Market

    Learn how to read the volume reports, look at the relation to liquidity and interpret volume using open interest.
  2. Trading

    How To Use Volume To Improve Your Trading

    The basic guidelines to analyzing volume may not apply in all situations, but overall, they can help direct entry and exit decisions.
  3. Trading

    How To Use Volume To Improve Your Trading

    Volume is a simple yet powerful way for traders and investors to increase their profits and minimize risks.
  4. Trading

    Confirming Price Movements With Volume Oscillators

    Use this indicator to validate a change in price direction and moving averages.
  5. Trading

    A Guide To Finding The Most Actively Traded Stocks

    Knowing the trading volume of a stock helps traders understand price movements and forecast future movements. This short guide helps investors locate actively traded data.
  6. Trading

    How To Tackle Intraday Volume

    Measure the flow of intraday volume to estimate the emotional intensity of the crowd.
  7. Investing

    What The Market Open Tells You

    The first few moments of trading provide a lot of information. If a trader analyzes this information, it can give a lot of insight into the market's moves for the day.
  8. Trading

    Use Market Volume Data to Determine a Bottom

    Market bottoms often carve out classic volume patterns that let observant traders make fast and accurate calls.
  9. Investing

    Using Volume Rate Of Change To Confirm Trends

    Wise traders rely on indicators that show a trend in volume, because without supportive volume, a price movement has no conviction.
RELATED FAQS
  1. Why is the Uptick Volume important for traders and analysts?

    Find out why technical analysts and traders keep track of uptick volume to better assess the momentum of a stock's price ... Read Answer >>
  2. Why is trading volume important to investors?

    Learn about trading volume, its importance and how investors analyze volume to confirm a trend or reversal in a security. Read Answer >>
  3. What is the Uptick Volume formula and how is it calculated?

    Learn more about uptick volume, a measurement of the number of trades that take place during a time when an asset's price ... Read Answer >>
  4. Why is the Time Segmented Volume (TSV) important for traders and analysts?

    Find out why the Time Segmented Volume (TSV) indicator is considered unique among other types of volume oscillators used ... Read Answer >>
  5. What are the best technical indicators to complement the Uptick Volume?

    See how uptick volume can be used to help confirm price trends from nearly every trend-following indicator, especially when ... Read Answer >>
  6. How do traders identify confirmation of prices on a chart?

    Learn about some of the crucial tools that traders can use to confirm their price movements on a chart before entering or ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center