Trading Volume

November 21, 2023 - Around 2 mins mins to read

Understanding Trading Volume

Trading volume, also referred to as volume, is the count of completed trades within a specific time frame for a particular security or the entire market. For example, if a security is traded 500 times in a day, the trading volume for that day would be 500.

It is important to note that trading volume can potentially surpass the total number of open positions at the start or end of a trading day if multiple traders enter and exit positions within the same day.

Considered a technical indicator, trading volume offers insights into the overall activity of a security or market. Investors often rely on trading volume to confirm the presence or continuation of a trend, as well as to identify potential trend reversals. By validating the price action of a security, trading volume assists investors in making informed decisions regarding buying or selling.

Furthermore, trading volume can aid investors in identifying momentum in a security and validating a trend. In most cases, when trading volume increases, the price tends to move in the same direction. This is particularly evident in an uptrend, where the volume of the security also increases.

When analyzing trading volume, it is beneficial to follow a basic framework to enhance trading strategies. Volume can be utilized to assess the strength or weakness of a move, with stronger volume indicating greater momentum. Traders are advised to participate in stronger moves and avoid weaker ones.

In essence, trading volume represents the total count of shares, tokens, or coins exchanged between buyers and sellers during trading hours on a specific day. This volume serves as a measure of liquidity and activity within the market.