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Stock Chart Volume

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.

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

stock chart volume

This is a 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?

Liquidity

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.

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.

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.