What is Volume?Volume is a Technical Analysis tool. It measures the number of shares a given stock has traded within a given time period. For example if a stock had a volume for the day of 3 million that means that 3 million shares of stock were bought and 3 million shares of stock were sold during the day. You can run volume on graphs to read daily, weekly, monthly and yearly. Volume can be helpful to confirm breakouts. Let us take a look at the graph below.
The bars on the bottom represent Volume. As we can see, the stock broke out of its resistance. The stock is currently trading Bullish. It is also confirmed by the fact that the Volume was higher on the breakout day. This is normally a good time to get into a Call or a Bull Put Spread as the stock is likely to keep trending upward. If the stock broke out on low volume you may not want to enter it, as it could easily come back down and continue bouncing between support and resistance. If it does break out on low volume it is normally a good idea to give it 1 more day to receive confirmation. If it goes up the next day it may be a good entry signal. Why is Volume Important? The idea behind looking at a trading volume is to see how many people were behind a given move in the market. If the stock went up, but volume was only at 1/3 what it normally is that could show that even though the stock did go up most people were not backing the move.
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