Trading Volume for a Stock



Trading volume represents the number of stock shares traded (buy and sell) in a specific time-range (It may be reported hourly). Higher trading volume is an indicator of market interest in buying or selling the security. Higher interest in buying stock may come from positive news announced by the company and results in higher stock prices. Higher interest in selling stock may come from negative news around the company and cause a drop in stock price. Technical analysts use trading volume to decide whether trade a stock on a particular. The trading volume is used to indicate the entry and exit points for technical analysts. Trading volume is also related to the liquidity of that stock. The higher trading volume means more buyers and sellers. Therefore, both buyers and sellers can get the deal that they want and benefit from the trade. This is especially important for day traders that want to get into and out of a stock fast.


Stocks with higher investor interest (higher trading volume) have a higher number of buyers and sellers. Therefore, the difference between buyers' and seller's bids (prices) decreases. A stock with high trading volume and higher buyers' interest can jump quickly in price. It is because lower prices are rejected by sellers and they offer higher prices to sell their shares. In the end, the prices in the stock market are determined by supply and demand.


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