Stock Trading

Volume

Volume is simply a measure of how many shares of stock have traded over a given period of time. It's one of the most basic and accessible numbers out there, but can still provide us with some helpful insights, and be used as an additional trade indicator to help us make trading decisions.

What does volume tell us? In a nutshell, it gives us an idea of the conviction traders have behind a stock price's current movement.

 

      • Stock rising on high volume = strong conviction, move could continue
      • Stock rising on low volume = little conviction, sign that a top is near
      • Stock falling on high volume = strong conviction, move could continue
      • Stock falling on low volume = little conviction, bottom may be close

Volume in Action

You can see in this chart of GPRO that the volume in March (as indicated by the bars at the bottom of the chart) began to increase. The stock continued to climb on strong volume for a number of days. As the volume dropped back down to the average, the stock's rally also slowed. Looking at this today you would conclude that the stock may be topping out here.

How to Use Volume

Join stocks that are moving on strong volume, and be wary of reversals from low volume stock moves. Look at volume to confirm a trend. Again, a stock rising on strong volume is an indication that there is strong conviction and the move will continue.

But as with all indicators, there are exceptions. Spikes in volume can also be seen sometimes as an exhaustion move. At a top it indicates that the FOMO traders have finally piled into the trade, and as they are generally the last to arrive, the stock will now be out of buyers. Meanwhile, at a bottom, a spike in volume may be because of traders being forced out by stops or margin calls. This selling exhausts itself quickly, at which point the weak hands are knocked out and buying resumes.

It can be difficult to know the difference in real time, which is why most traders won't use volume as an indicator by itself. Instead, it is a useful tool to help confirm your group of indicators as a whole.

Adding Volume to TradingView Charts

Click the Indicators and Strategies button at the top of your chart. Search for Volume and click to choose it.

The volume indicator should now show up under the top left next to the stock ticker. Choose the settings gear icon, then under Inputs enter 50 for MA length.

You will now see the Volume indicator at the bottom of your stock's chart. The line through the bars is the 50-Period moving average. This is a good indicator of what recent volume has been. A volume bar above the line shows strong volume, a bar below the line shows weaker than average volume.

Congratulations! You've now added volume to your trading arsenal.

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