Trading volume - Volume in Stock Market, How do Traders Use it?

Trading volume shows how many shares (or contracts) change hands in a market during a time period, like a day or an hour. Think of it as the count of units traded. When volume is high, many buyers and sellers are active. When volume is low, fewer people are trading.
Why should a beginner care? Volume helps you see market interest in a stock. It also tells you if a price move is strong or weak. A big price jump on high volume usually has more support. A jump on low volume may fade soon

What Is Volume of Trade?

Volume of trade is the total number of shares (or contracts) traded in a set time. Every time a buy order and a sell order match, a trade happens. The number of shares in that trade adds to the day’s volume.

Example: If one trade is 200 shares and another trade is 500 shares, the total added volume is 700 shares. At the end of the day, the exchange shows the sum of all such trades as daily volume.

Key points in simple words:

• Volume counts units traded, not the number of trades.
• It can be measured for any time frame: minute, hour, day, week.
• Higher volume means more participation and usually easier buying/selling (better liquidity).
• Lower volume means less participation and sometimes wider bid–ask spreads.

Do not confuse volume with turnover (or traded value). Turnover is price × volume. A stock can have high volume with a low price, or low volume with a high price. Volume tells you how active the stock is; turnover tells you how much money changed hands.

Understanding Volume of Trade

Volume helps you read the strength behind a price move:

• Rising price + rising volume: Buyers are active; move may be strong.
• Rising price + falling volume: Fewer new buyers; move may be weak.
• Falling price + rising volume: Sellers are active; drop may be strong.
• Falling price + falling volume: Fewer trades; drop may be slowing.

Two simple ideas make volume more useful:

1. Average Volume: Many charts show a 10-day or 20-day average. Today’s volume above average means unusual interest; below average means quiet day.
2. Relative Volume (RVOL) idea: Compares today’s volume to the normal level for that time of day. A high RVOL means more activity than usual.

Traders also watch volume spikes. A sudden, very high bar can mean news, results, or strong market attention. Spikes around breakouts (when price crosses a key level) often signal trust in that move. Spikes at bottoms or tops can show fear or excitement.

Remember: volume does not say why people trade; it only shows how many units traded. Price action and basic news still matter.

Where Can You Find Trading Volume?

• Stock exchange websites (daily volume shown for each stock).
• Broker or market apps (watchlists, stock pages, and charts show volume).
• Price charts (the lower panel often shows colored volume bars).
• Daily market summary pages and financial news.

What Does Trading Volume Indicate?

• Interest/Participation: Many traders are active when volume is high.
• Liquidity: Easier entry and exit, usually tighter bid–ask spread.
• Confirmation: Helps judge if a price move is strong or weak.
• Attention/News: Spikes can point to results, announcements, or events.
• Potential Trend Change: Unusual volume near turning points can signal a shift.

Why Is Trading Volume Important?

• Better fills: Active stocks often give faster order execution.
• Fairer pricing: High volume usually means tighter spreads.
• Risk control: Easy exit matters when you want to cut losses.
• Signal strength: Helps confirm breakouts and breakdowns.
• Study tool: Works well with price, support/resistance, and trend lines.

Volume and Price: How Are They Related or Unrelated?

• Together (confirming):

  • Price up with high volume → strength.
  • Price down with high volume → strong selling.

• Apart (diverging):

  • Price up with low volume → weak move, can fade.
  • Price down with low volume → weak selling, may pause soon.

There is no perfect rule. Volume supports the story that price is telling. Always read both together.

How Volume of Trade Works

Every trade has two sides: one buyer and one seller. When their prices match, a trade happens, and the quantity of that trade is added to volume. Over the day, thousands of trades can happen. The exchange adds all traded quantities to get daily volume.

Simple flow:

1. Orders placed: Buyers place bids; sellers place offers.
2. Orders match: When a bid meets an offer, a trade is made.
3. Volume adds up: Each trade’s quantity increases the total volume.
4. End of period: Total shows how active the stock was during that time.

In derivatives(like futures), volume counts the number of contracts traded. There is also a measure called Open Interest (OI), which shows how many contracts are open at the end of the day. Volume says how much traded today; OI says how many contracts still exist after today.

High volume often appears during:

• Open and close of the market day.
• Results and major news.
• Breakouts/breakdowns on charts.
• Index rebalancing or big fund activity.

Example of Volume of Trade

Imagine Stock A during the day:

• Trade 1: 300 shares
• Trade 2: 700 shares
• Trade 3: 1,500 shares
• Trade 4: 500 shares

Total volume = 300 + 700 + 1,500 + 500 = 3,000 shares.

If the day’s average volume for Stock A is usually 1,800 shares, today’s 3,000 is above average, so activity was high. If the stock also rose in price today, traders may say the up-move had good participation.

Read more: How to Use Volume Trading in Stock Market