Volume is the number of shares that the traders exchange in a given period of time. An increase or decrease in volume directly affects the profit and risk in the stock market which result in a high volume of stocks. To have higher stock prices, it is essential that the number of buyers increases along with their enthusiasm for a particular stock. A subtle increase or decrease in the volume is not a strong signal and it doesn’t affect the stock market significantly. But if there is a drastic change in the volume the market changes.
Increase Profit and Minimize Risk
Most of the traders, invest in a share that has the most active stocks. Hence, it is advisable to invest in strong moves where there is top volume stock. Volume helps the investors in identifying momentum in a trend. It is good practice to invest where the volume is high, to increase profit and minimize risk. There are basic guidelines in understanding volume in stock market.
1. Bullish Signs
With the increase in volume, if there is a decline in price, then if the price goes higher with the moved back later phenomenon, it is considered as a bullish sign. Here, it is beneficial for buyers to trade in high volume stocks during such signs.
2. False Breakouts
A rise in volume is considered as a positive sign in moves. Little or no change in the volume for a long period has a high probability of false breakout. Traders should understand this concept and avoid investing in false breakouts.
Reversal is the positive or negative change in the direction of price trend. If the trade began to move with little change in the price and high change in the volume, it indicates reversal.
4. Volume History
It is important to have the recent data of volume. It is irrelevant to compare the present-day data with the volume that was twenty years ago. So, while noting the graph of the volume, always consider the most recent data for high relevance