Trading Volume Definition

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The Structured Query Language comprises several different data types that allow it to store different types of information… Get relevant tips and viewpoints to help you make smart investment decisions, powered by the expertise of J.P. Volume tends to be highest near the market open and close and the start of the week and last day of the week. Alexandra Twin has 15+ years of experience as an editor and writer, covering financial news for public and private companies.

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This may sound obvious, but it’s a rather common misconception. such as Head and Shoulders, Triangles, Flags, and other chart patterns should be confirmed by volume. If a price movement is accompanied by a proportionate increase in volume, it is seen as more significant than one that isn’t. Volume can be used to measure stocks, bonds, options, futures, commodities, and forex. The trading volume is usually higher when there is a significant price fluctuation in the market.

While the stock’s price may continue to fall, traders who use volume analysis may start to follow the stock and watch for signs of a pickup supported by increasing volume. The most common timeframe to use when talking about volume in stocks is the daily volume. The average daily volume is the average number of shares traded per day over a certain period, often approximately 1 month.

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On the other hand, if the volume is below average, there may not be enough indication to support a true trend reversal. Whenever a contract is traded, there has to be a buyer and a seller in order for the transaction to take place. The more actively traded an asset is, the higher the volume will be .


A likely price reversal can be predicted by steep price movements and/ or steep volume rises. A much above-average volume might occasionally signal a price movement’s peak. There may be nothing else to intervene, driving the price in that direction continuously because so many shares are traded in a particular price range. Furthermore, populations with both short- and long-horizon agents increase return variability, and leave patterns in volatility and trading volume similar to actual financial markets. We then examine the effect of the constraint on stock prices, trading volume, and the relationship between stock-price movements and output cycles. Also notice how other, smaller volume spikes in the chart took place on days with relatively large stock price movements.

A real-world example of trading volume

One the other hand, if the price of a stock with a high trading volume is falling, it suggests that there is a lot of selling pressure. Let’s say that you are looking at the volume of trading on the stock market. You decided to focus your attention on company ABC and want to determine whether the share price is increasing. However, you can see that there is a low trading volume, which would mean that there is little buying power on the market.

  • For this to be successful, one needs to trade stocks with high daily volume – minimum of 1 million.
  • Stocks with higher volumes have more investors interested in buying or selling them.
  • Investors can make an assessment of how convicted traders are about a particular stock, or the market in general.
  • The normal volume is the average volume for that given period of time for a past-specified number of days.
  • The volume doesn’t tell which one it will be, but it will alert the possibility accordingly.

Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction. The value of shares and ETFs bought through a share dealing account can fall as well as rise, which could mean getting back less than you originally put in. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Quadruple witching refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. Open interest is the total number of outstanding derivative contracts, such as options or futures, that have not been settled.

Trade volume is also an important factor for traders when they are making trading decisions. They track a security’s average trading volume on a daily basis over a short term or even a longer-term period for the same. Usually, trading volumes tend to increase towards the beginning and end of a trading day. The same thing occurs on Mondays and Fridays as they mark the beginning and end of the trading week. As discussed, investors and analysts can use bar charts to simplify the ability to see stock volume trends and confirm price movements.

Volume in Technical Analysis

A key bullish indicator is when a stock price has fallen on increasing volume, ahead of a share price rebound, followed by another decline on lower volume. If the stock price doesn’t fall below the previous low when it declines the second time, and volume is down during that second decline, it can be a bullish indicator. Volume analysis is the examination of the number of shares or contracts of a security that have been traded in a given period. A Bollinger Band® is a momentum indicator used in technical analysis that depicts two standard deviations above and below a simple moving average. Volume is an important indicator in technical analysis because it is used to measure the relative significance of a market move.


Whether you choose to work with an advisor and develop a strategy or invest online, J.P. Morgan offers insights, expertise and tools to help you reach your goals. Using an updated version will help protect your accounts and provide a better experience. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018.

All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. There’s no shortage of information or tools available when it comes to taking steps to start investing. There are always risks, and no tool or strategy guarantees success, so it’s essential for every investor to evaluate what risks are acceptable to them. However, there has been little progress on explaining volatility persistence, and virtually none on explaining the joint dynamics of volatility and trading volume. We also find that average trading volume in the economy with short sales is higher than that in the economy with no short sales. The average trading volume is also higher for the model with the endogenous short-sale constraint than that for the model with no short sales.

Some traders prefer to measure the volume with a moving average to spot when volume is relatively heavy or thin. When a stock’s trading volume rises, it can signify that investor demand is high, and stock prices may go up as well. One approach traders use to evaluate a stock is technical analysis.

As a result, we have no reason to believe our customers perform better or worse than traders as a whole. Price levels with historically high volume can also give traders an indication regarding where the best entry and exit points could be located for a specific trade setup. The value of your investment will fluctuate over time, and you may gain or lose money. Following a big rally in 2021, stocks have been in a downtrend for most of this year. However, the Dow is up roughly 11% thus far in October, cutting stocks’ decline to 12% year to date. That’s led some investors to wonder if stocks have finally found a bottom in 2022.

INVESTMENT BANKING RESOURCESLearn the foundation of Investment banking, financial modeling, valuations and more. U.S. exports to China in 2021 were $151.1 billion, a 21.4% ($26.6 billion) increase from 2020; the U.S. imports from China were $506.4 billion, a 16.5% ($71.6 billion) increase. Conversely, the trade deficit with China was $355.3 billion, a 14.5% ($45.0 billion) increase. LiquidityLiquidity is the ease of converting assets or securities into cash.

The benefits of CFD trading volume is a tool to help you understand current stock trends. This article is for education purposes only and is not a recommendation. Open to the Public Investing, Inc. does not offer technical analysis, margin, and does not support trading with unsettled funds. Envelope Light The Daily Upside Newsletter Investment news and high-quality insights delivered straight to your inboxIcon-Investing Get Started Investing You can do it.

He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. It is a key aspect to consider when traders opt for intra-day trading. Similarly, when a security is traded less actively, its trade volume is said to be low. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved.

There is no clear definition of what a good volume is for stocks. In fact, sometimes volumes may increase for reasons like stock splits or news items. Investors can use volume information to assist in their determination of whether a stock would be good for their portfolio. For example, a rising stock should bring increasing volumes, indicating a strong bullish conviction. However, if investors see a rising price and declining volume, it might suggest a lack of interest, and a reversal may be just around the corner.

The volume spike during the first week of June is a good example. As you can see in the chart below, there was a massive volume spike on June 24, the day the “Brexit” vote sent shockwaves through the market. In fact, volume spiked to more than 70 million shares on that day. Notice how on the same day, and on the following day which also had high volume, Citigroup’s stock price had its largest two-day move of the month.

Transaction costs are expected to increase if market liquidity is not kept at a sustainable level. The trading volume is a measure of the total shares that have changed hands for a specific time period. Dollar volume is calculated by trading volume multiplied by price. For example, if XYZ has a total trading volume of 100,000 shares at $5, then the dollar volume is $500,000. Money managers use dollar volume metrics to determine whether a stock has enough liquidity to support a position.

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