What is volume in trading? A complete guide

If you're new to trading, you've probably come across the term "volume" and wondered what it means. Volume in trading is the total number of trades in any given time period, which includes shares of stock, bonds, options, future contracts, or overall activity in a particular market. In this article, we'll dive deeper into what volume is in trading and why it's important.

What is volume in trading?

As we mentioned earlier, volume in trading refers to the total number of trades in a given time period. It helps traders understand the strength or demand of the market by showing how much trading activity is taking place. Volume is typically displayed as a histogram at the bottom of the stock chart or graphed on top of prices.

Why is volume analysis important?

Volume analysis is crucial because it helps traders make sense of the constant fluctuations in the markets that may otherwise appear like noise. By analyzing volume, traders can gain insights into why something is happening (traditionally fundamental analysis) and when something will happen (typically technical analysis).

Technical analysis

When using technical analysis, traders use volume to confirm trends, identify support and resistance levels, and make trading decisions. High volume confirms that a trend is strong, while low volume indicates a weak trend. Volume can also help traders identify potential breakouts or breakdowns in price.

Conclusion

In conclusion, volume in trading is the total number of trades in any given time period. It helps traders understand market strength or demand and is crucial for both technical and fundamental analysis. By analyzing volume, traders can gain insights into why something is happening and when something will happen. While volume analysis can help traders predict market movements, it's essential to use other technical indicators and charts to confirm their analysis.