What is Volume?
Volume is a tool to know how many shares have been bought and sold in a given period of time. It helps in analysing the trends and patterns. Wether you are talking about shares of an individual stock or the number of options contracts traded, or an entire stock market, volume information can be found just about anywhere. The point is very few traders or investors know how to use this information to increase their profits and minimize risk. Volume provides an indication of investors interest in a stock.
For all buyers in the market, there needs to be someone who sells them the shares they bought in order to have a trade. As an illustration suppose if you buy 1000 shares of State Bank of India (SBI) at 270, and your friend sell 1000 shares of State Bank of India (SBI) at 270. You and your friend together have created a volume of 1000 shares in total. Many traders makes an assumption that volumes count for above will be 2000 (1000 buy+1000 sell), which is incorrect.
Check this data showing volume of different Stocks:
As you can see in above image, blue box represent the volume of shares traded during live market of few stocks listed on NSE. All the volumes are in cumulative(increasing). Below is the example showing volume on a usual trading day, please make a note how this adds up at the end of the trading session. It’s important to note that when counting volume, each buy/sell transaction is counted only once.
This war between buyers and sellers for the best price in all different time frames creates short-term price movement. However the point is now you know what volume is, but how this going to help you at all. Simply seeing volume does not give any idea as to what exactly is happening in a particular stock. When analyzing it, there are guidelines we can use to determine the strength or weakness of a move. Volume can be very useful in identifying bullish and bearish signs in a stock.