What is Volume in Share Market?

It is pretty essential to understand how to trade in the stock market. Making use of all the available information helps make a better trade. One such helpful piece of information available is the volume in the share market. Now you may have questions like What is the volume in the share market? What is the meaning of volume in the share market?  So let us find out the meaning of volume in the share market. We shall take a deep look at most of its aspects and understand how it is a key factor in the share market. Volume in the share market means the number of times a particular stock has been traded in a fixed period of duration. 

We should consider an example that can give us a better understanding of this concept of volume. Let’s take an example where a company might have 1000 shares available in the market. If these 1000 shares have changed hands three times each, the volume traded in the day would be 3000. Volume is independent of the shares circulating in the stock market. The volume in the share market helps to track how volatile stocks are. They are helpful to gauge investors’ sentiment toward a particular share. The higher the activity related to the shares of a company, the higher the volume of trading. We should keep one thing in mind here. Volume is different from the count, which is inappropriate for considering the volumes. 

Stock exchanges monitor the trading volume of all the shares. All the information regarding volume in the share market is readily accessible. It can be found on various news channels or websites, on 3rd part websites, and provided by your stockbroker. Volume is particularly depicted when the traders or investors use charting tools like candlestick charts or patterns. The red and green bars below each of the candles indicate the total outcome of the volume. These bars are for the time frame of the candle bar itself. They are really helpful and assist you in knowing the buying or selling pressure on the stock price. 

The Volume and the price of security have a deep correlation with each other. The higher the volume, the more the price would swing in a specific direction. If there is a high buying volume compared to a low selling volume, the share prices tend to increase. If the opposite is true, then the price would fall. The volume of the share market for a stock is significant, but it can even out upon equal buying and selling. This would then lead to the share price being reasonably stable until one does not overtake the other. 

Usage of Volume

Possessing the knowledge and use of the volume of the share market can help you drastically in gauging the market trends. Here are a few ways in which you can use trading volume to your benefit. 

Trend

A bullish market must indicate an increase in buying volumes of assets. The prices of shares will increase if the number of buyers increases over a significant period of time. If the volume starts to reduce, it could be an indication that the price might either stabilize or reduce further. If the volume is increasing but the price keeps on dropping, it simply means that the selling volume of shares is increasing.

Exhaustion Moves

If the market follows a trend, there’s a sudden change in volume and price. Even if the trend does continue, it could indicate a changing sentiment among its investors. It means that investors are either selling shares thinking the price could drop soon or buying shares if the stock price is falling. The share market’s volume indicates how a trend might be ending in such situations.

Reversals

Volume is an excellent indicator for predicting reversals. If you notice that the volume in the share market for a particular share is reducing, the price is still increasing; investors are no longer buying it. If the decrease in buy volume continues with a rise in sell volume, it could reverse. 

It means that the price would now start reducing, and the uptrend is over. The same could happen in a downtrend. If there is a reduction in volume while prices are declining, it would mean that investors want to hold onto their shares. If the buy volume increases, investors want the share, and we could see a trend reversal increasing the share prices.

Volume History

Volume can be comparable with the past to make specific assessments. The time frame for this comparison matters as it needs to be related. It would be pointless to compare volumes ten or maybe more years apart as the number of investors has drastically increased over the last few years. As technology has made trading easy, there has been an increase in the share market’s volume. Comparing these volumes can help you know which shares are more in demand.

Liquidity

Knowing which shares have more of the share market volume is that it is more liquid than the rest. It means that if you have to sell that share. It will be relatively easy due to the high trading volume in the share market. 

Three Volume Indicators

Indicators are visual representations of mathematical formulae used in charts. Every indicator has a different purpose and a different formula. Indicators are beneficial in making trading decisions. 

Here are the three indicators that you can use for volume.

On-Balance-Volume (OBV)

At the end of the market, volume is added or subtracted to an arbitrary starting number based on whether the market finishes higher or lower. It provides information like running total accumulation of stock and also shows divergences.

Chaikin Money Flow

Increasing prices generally means a rise in buying volume of the stock. Chaikin Money Flow helps us with the value of corresponding strength, based on expanded prices of the prices that finish on the upper or lower end of the daily range. The value will be high, closing prices towards the upper end of the day’s price range. The value will be negative if the price is toward the lower end of the range.

Kingler Oscillator

The oscillator is created by comparing the share market’s volume with the price movement. It fluctuates based on the buying and selling volume for a given period. 

Volume can be beneficial in understanding a trend and even predicting a change in trend. Ensure you understand the meaning of volume in the share market before using it to predict market trends. 

Volume and Price: How are they related or unrelated?

Volume and price in the stock market are often related, but their relationship is not always direct or causal. Here are some key points to understand their connection:

Confirmation of trends

High trading volumes can confirm the existence of a trend, especially when combined with a price rise or market rally. This suggests increased market participation and can indicate the strength of the trend.

Influence on price

In some circumstances, a stock’s price may be affected by a large rise in trading volume. Prices can go up with increasing demand (measured by volume), while prices can go down with higher supply.

Other factors influencing price

While volume is one factor, several other factors influence stock prices, including company performance, news events, economic conditions, investor sentiment, and market dynamics. Therefore, changes in price are not solely dependent on trading volume.

Price manipulation

It’s important to note that unusually high volume or price movements can sometimes be a result of price manipulation or speculative trading activities. Therefore, relying solely on volume to predict price movements may not always be accurate.

In summary, even while volume can shed light on market activity and support trends, it is crucial to take into account other aspects and indicators to fully comprehend how prices move in the stock market.

Conclusion

The volumes are a great indicator in order to confirm the direction of a trend. In simple terms, it is basically the number of instances in which a specific asset gets traded in the share market. We fix a time frame to calculate the volume of a security. However, it is relevant to pay attention that volume is not the same as the count. We must learn to differentiate between the two to avoid any confusion. At the end of a trading day, the volume shows the overall volume across all the trades performed in the entire day. The higher the volume, the higher will be the smart money. Low volumes are indicative of a huge interest of retail investors. 

The volume is a very useful indicator that investors and traders use in a variety of ways for their benefit. They can find the trends, market sentiment, and assets in demand by comparing the volumes. They can employ certain volume indicators too, like the on-balance volume, Kingler Oscillator, and Chaikin Money Flow. As a principle, investors should always try to confirm the volume properly prior to entering into a position. Whether it is a long position or a short position, it is good to have a thorough look at the volume of the asset. In addition, investors should make it a habit of not trading on the days when the share market witnesses low volumes.

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