Investing in Philippines: Technical Side: Let's Learn About Volume

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Thursday, April 5, 2012

Technical Side: Let's Learn About Volume

Black and white volume image
source: http://iphonefreakz.com


Volume as Investopedia.com is:
The number of shares or contracts traded in a security or an entire market during a given period of time. It is simply the amount of shares that trade hands from sellers to buyers as a measure of activity. If a buyer of a stock purchases 100 shares from a seller, then the volume for that period increases by 100 shares based on that transaction. 
(Read more: http://www.investopedia.com)

 

Why is Volume an important number or graph that you should check in connection to interpreting your Price Graph? 

MBT price chart showing volume
source: http://investing.businessweek.com


Volume tells you how significant is the price change. When a  stock's price is rising or dropping and yet Volume is not picking or moving with the price change it only means that the stock is not really trading much probably only a couple of buyers just want to grab the stock. But when volume moves dramatically along with price changes it is a good sign  that such stocks is being traded thus the chances of hitting your buy or sell trade is higher.

Because of such relation of Price and Volume, technical analyst use volume as a confirming indicator for any formation in the price graph. If the price graph is showing formations of inverted head and shoulder but the volume does not indicate that investors are anticipating the breakout traders won't be jumping into it yet until it is clear that investors are grabbing the stock.

Always check Volume when analyzing your price chart.

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