Education excerpt: Volume
Updated
Financial transaction involving exchange of goods is a result of mutual agreement between buyer and seller. In markets, the amount of goods exchanged between these two parties is called a volume . On graph, the volume is often represented by green and red bars below the chart of particular security. This depiction is helpful as it makes easier to spot underlying trend in volume . Information about the volume can give an analyst better sense of market sentiment. Securities with high daily volume are generally more liquid as opposed to securities with low daily volume . This derives from an idea that high volume is accompanied by increased trading activity. Usually, volume tends to increase as trend develops. In some instances, quick and sharp growth in volume can signal beginning of a new trend. Similarly, sudden jump in volume can mean that new traders entered the market. When there is increase in price of an asset and increase in volume at the same time, it is considered ordinary. Though, decrease in volume and rise in prices may give technical analyst hint that less and less buyers are willing to buy an asset at current prices. Thus, technical analyst should treat decrease in volume and increase in price as questionable. Same rule applies when volume simultaneously increases as price decreases. Some analysts like to differentiate between significant and insignificant move dependant on size of volume . Price moves that occur on low volume tend to be considered less significant. This is often associated with market holidays and when trading session is shorter than what it normally would be. Volume tends to be lower on these occasions and also closely prior to them. Volume is regularly updated throughout trading session. However, this figure is only estimate as final figures are reported on following day.
Note
On graph we can see that volume increased as markets started to sell off. This continued until eventual reversal in volume growth which could potentionally signal that some sellers are stepping out of the market. Later as volume decreased to its pre-selloff levels trend reversed and prices started to climb.
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