What Does Volume Mean in the Stock Market?

Author: George Davis



Understanding trade volume is crucial to up our trading game. Read this blog post to learn everything you want to know about trade volume.



When trading at the stock market or looking at an order book, you will see or hear the term “volume” frequently. The conventional definition of volume is different compared to how the stock market defines it. Whether you are a beginner or a full-time investor, understanding volume and how it can affect your trade is crucial for stock market success.

What Does Volume Mean in the Stock Market?



In simple terms, volume is defined as the number of shares traded in the stock market. The term ‘volume’ can apply to individual companies or the stock market as a whole. Volume is calculated by the number of shares traded in a day. For example, the stock market will start recording the number of shares traded for each company, from the opening till the closing of the stock exchange. Volume is mostly used by stock exchanges to determine how many shares they traded per day and calculate stock market points.

Understanding Volume in the Stock Market



Every transaction that takes place within the stock exchange is recorded. These transactions determine the “volume” of shares traded throughout the day. Suppose a stock exchange only has one listed company, and its shares were traded 5 times per day. In this case, the volume of the stock exchange and the company would be 5.

Each stock exchange tracks its volume and provides the data for free or for a subscription fee. Usually, the volume data chart is updated after every hour. So, there is a 60-minute gap that doesn’t inform investors about how many shares were traded on a busy Wall Street day. The trade volume shared during the “trade day” is an estimate. Moreover, the trade volume shared after closing is also an estimate. The actual trade volume is shared the following day.

Trade volume tends to be higher as the market’s opening and closing hours come closer. However, during lunch and before holidays, the trade volume is lowered significantly.

Volume tells investors about market activity and liquidity. If a particular share is being traded in a high volume, it indicates buyers’ willingness to pay the asking price. Investors change their defensive stance into an offense quickly and start selling shares in high demand. If the bullish trend continuous, new investors enter the buying market and start selling near market closing hours. Shares with high trade volumes are considered to be volatile shares because the demand can drop at any time.

In Summary



Understanding trade volume is crucial to increase your chances of making a successful trade. It allows traders to analyze the order book of a particular exchange and predict where the stock market is headed.

Stock Picks



1. Dollar General Corporation (DG)

2. TFI International, Inc. (TFII)

3. Century Communities, Inc. (CCS)

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