Stock Chart Volume

A stock chart’s volume is perhaps the most misunderstood of all the technical indicators that traders utilize..

In this article I am going to talk about stock chart volume and how to interpret it. The volume of a stock can be defined as the number of shares traded over a set period. The more shares that are traded, the higher the volume.

Volume represents the interest level in a selected security. When a security is trading on low volume, then there is not much interest in the stock. Alternately, if a security is trading on high volume, that indicates a lot of interest in the security.

A stock’s volume simply tells us the emotional excitement – or in some cases, the lack of excitement –  in a stock.

The volume of a stock is often plotted on a stock chart using a histogram at the bottom of a chart, such as in the chart seen below:

stock chart volume
This is a stock chart for the oil company Shell. You can see from this chart that in late October and early November the volume for the stock was very high. Now comes an obvious question.

Why is the volume of a stock important?


The higher the volume of a particular stock the easier it will generally be to find a buyer or seller when needed.

A trader who owns a stock with a very low volume may not be able to buy or sell it at the exact time he or she wants to. This can pose an additional risk factor to consider, namely, not being able to enter or exit a trade when you would like to.  This can seriously damage your trading plan, and ultimately affect your overall returns.

A stock with a low volume is considered to be “illiquid”. Generally, stocks in  large stable blue chip companies are a lot more liquid than stocks in smaller companies, especially penny stocks.

Often, traders tend to believe that stocks that are “down on high volume” indicates that there are more sellers than buyers for that stock, and that a stock that is “up on high volume” is an indicator that there are more buyers than sellers for the security. There is still a buyer for every seller regardless if it is a low volume day or a high volume day .

You may be wondering if all volume represents is interest in a stock, then when is volume useful to a trader? A stock’s volume is really only useful is when you combine it with the stock’s price.  Often times you will find that a stock’s volume will increase prior to a substantial price move for a security.  You will be able to see that interest in the stock is rising.  When reading a stock chart, watch for volume that is higher than the day before.  This is an indicator that there may be a substancial move coming in the future.

Volume patterns

There are certain volume patterns that can be useful to know.

There is often a significant spike in volume at the end of a trend. Referring back to the stock chart above, we can see the volume on the chart spike in early November, as the stock plunges.

The rate of the decline increases as more stock holders sell. You can see the volume bars increasing as this happens.

After the pressure from sellers decreases, the volume of the stock stops falling and quickly recovers.

Another volume pattern is churning. Churning is where volume is very high, but a stock price stays in a tight range. This is very often a precursor to a significant move.

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