August 14, 2023

What is Volume in Stock Market

What is Volume in Stock Market? – How important is Volume in Trading & Investing?

Volume in the stock market is the number of shares that changed hands in a particular time period. It can be a buy order or a sell order. The higher volume would mean more shares were traded, the lower volume would mean fewer shares were traded.

Let’s understand this with a simple example.

Ask a 10-year-old boy how many cricket balls he wants. He would probably say 10 because even he would know that it is going to take him some time to lose all of them. But if you give him just one, he would be happy but a little sad as well because, why not. The number of balls is directly proportional to the happiness of the boy. 

When you buy something in bulk/volume in a normal vegetable or grocery market, you will be rewarded with several offers and incentives. But the same is not the case in the stock market. 

So let’s find out what volume in the share market means and how it impacts the market.

Content:

What is volume trading in stock market?

Let’s start in the simplest way possible. Volume trade simply means the number of shares traded (bought or sold) on any given day. If 10 shares of a company are sold at ₹ 100, and someone is buying 10 shares at ₹ 100, then these two people have together generated a total volume of 10. 

Later in the day, if that person sells his 10 shares at ₹ 115 and someone buys it at ₹ 115, then another volume of 10 will be added to the total at the end of the trading session. 

Volume is measured cumulatively. Therefore, trading volume is the number of shares that changed hands in a particular time period. It can be a buy order or a sell order. The higher volume would mean more shares were traded, the lower volume would mean fewer shares were traded.

Volume in share market with example

All the stock markets publish the volume of shares traded in each session. It is very easy to access the information on the volume of any stock traded on the exchange. Traders can not only look for the volume traded in one session but can also customize their search and lookup for volume in a week, a month, 100-day, and so on. 

The BSE website publishes the volume trade of each stock. It also gives information on how many shares exchanged hands. For example, SBI’s 1,120,451 shares were traded on a Friday in May, and the number of trades was 43,643. Likewise, Tata Steel had 881,008 shares traded with 19,057 trades.

Important Points to keep in mind:

  • If the stock price is going down and the volume of the trade is going up, it means that there is a downside trend. 
  • If the stock prices are going up and the volume is up too, this means the market is seeing an uptrend.

Why is volume important?

Volume tells us what is going on with the stock. Here are a few points that will shed more light on the significance of volume.

  • Volume tells which stock has been in action the most in a particular trading session.
  • Volume measures the market liquidity. Liquidity is the ease with which an investor can sell the stock and buy it back again.
  • It tells us which stock is buzzing the most on the exchange. Buzz can be both negative and positive. Hence interpretation is required.
  • Trading volume becomes useful for intraday traders to analyze and take a position.
  • Volume is also used by fundamental analysts to see the performance of a stock over a bigger period of time. Learn about fundamental analysis, here!

To know what is liquidity in stock market, click on this link.

Best Volume Indicators

Volume RSI

Volume RSI is a momentum indicator. It measures the speed and change of volume during the price up-close and price down-close. RSI tried to capture the change in the price trend of a stock against the volume traded of the stock, be it high volume or low volume.

Volume-Price Trend Indicator (VPT) or price-volume trend indicator (PVT)

The volume-price trend indicator relates the volume of stock traded with the smallest change in price. This indicator helps to determine both the price direction and the strength of the price move. It shows the balance of demand and supply of the stock and what impact it has on the price of the stock.

Volume Oscillator (VO)

The volume oscillator shows the difference between the moving averages of two volumes as a percentage of the slower moving average. There are two moving averages of volume data available to the trader. One is faster than the other. The difference is calculated and expressed as a percentage of the one which is slower. If the line of this graph is above zero then there is a surge in volume, if it is below zero, then there is a decline in volume.

Money Flow Index (MFI)

This indicator oscillates between 0 and 100. It is used to show the money flow direction by estimating the values of trades and the net direction of the trades. MFI shows how much a stock is traded and the percentage that is traded positively. A value of 80 and above is overbought, while 20 and below is considered oversold.

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:

Market What is Primary Market?
Difference between IPO and FPO
Bull vs Bear Market
Trading What is Online Trading?
What is Algo Trading?
Investment What is Bonus Share?
What is Valuation of Shares?
What is Corporate Action?
Analysis Stock Market Analysis
Individual Topics Stoploss Order
What are CTT & STT Charges?
India Vix
Difference between FDI and FII
Account What is Trading Account
What is Demat Account

Quick Summary

Volume data is available easily. Putting it to good use is the trick. Traders can simply look at the volume against the price change and make a decent enough decision on their position. However, the other tools for volume are not for show. Volume in isolation would not mean much. It needs to be put up against some other parameter to make more sense. Hence, it is advisable to learn more tools and then make good use of volume data.

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