Volume in the stock market is the total number of sellers and buyers exchanging shares over a given period of time. Usually time period is a day. Volume as a general term describes the amount of total traded entity.
Volume plays a critical role in stock market. As explained above volume is the quantity of shares traded. But the key is that more shares exchanged at a given price, the more that volume confirms the price. Same as the low volume show the less quantity of shares traded. In this article you will find all answer regarding “Meaning Of Volume”
Volume can be divided in to several categories to understand it in a better way.
- Market Volume (Trading Volume): The number of shares exchanged between buyers & sellers. (Time period = a day)
- Total Volume (Exchange Volume): The entire amount of all traded shares on an exchange, Such as the National Stock Exchange.
- Index Volume: The cumulative sum of the volume traded in all of the components of an Index. Such as the Nifty and Sensex.
- Total trades: How many transactions occurred within the trading session.
- Float: The number of shares owned by the holders available for exchange.
- Average volume (Typical Volume): It is computed as a moving average. Average volume enables the analyst to detect whether volume is increasing or decreasing relative to the past.
Meaning Of Volume
Volume is the Fuel of the Stock Market: For a car to run, it required petrol or diesel. Same for stock market, volume is the fuel that enables market to move. Volume is a measure of the total demand and supply produced by the market. Market volume is a quality that, when increased, trends to produce an acceleration of the price direction. Volume Leads price. Volume can provide essential information by indicating a price change before it happens.
Volume and Open Interest:
1. Price:
While, Analysing charts, there are some factors that are considered when it comes to price.
- Momentum: Momentum describes how strong price moves into the one direction.
- Volatility: Volatility refers to the amount of uncertainty or risk related to the size of changes in a securities value.
Support and Resistance of any chart gives information about movement of price. A trader who can read and interpret volume, Open Interest and Price information and understand that those three elements provide insights about the activity and the sentiment of investors, can make much better trading decisions.
2. Open Interest:
Open Interest provides information about the numbers of outstanding contracts at the end of any given day that has not been settled. For each buyer you need sellers, up until the moment that a buyer and a seller have been matched to create a trade the contract is considered “Open”.
Increase in open interest shows that more traders want to enter position and increase in open interest indicates that a breakout is likely or that the trend will strengthen since more investors are looking to enter a trade.
Volume and Open Interest are the barometer of the future direction. Mostly future sources track open interest and volume. Technical analyst can easily watch the volume that represent a measure of pressure behind the price trend. The higher the volume, the more technicians expect the existing trend to continue. Also, analyst believe that volume precedes price, that means the loss of either downside price pressure in a downtrend or upside pressure in an uptrend.
The Table shows the General Rules for Volume and Open interest :
| Price | Volume | Open Interest | Market | Interpretation | |||
| Increase | UP | UP | Strong | Strong Bullish Trend | |||
| Increase | Down | Down | Weak | Fading trend strength | |||
| Decrease | Up | Up | Weak | Strong bearish trend | |||
| Decrease | Down | Down | Strong | Potential turn |
Web for Live O.I. & Vol: https://www.nirmalbang.com/derivative/open-interest-live-nse-bse.aspx
There is no need to study chart for this indicator since the rules are the most important area to study and remember. If you are beginner and starting to understand the basic parameters of the study, look at many different charts of different stocks and Index, that develop with interest, Volume and price. These concepts tend to be confusing for beginners but it is very important concepts to understand in undertaking analysis of market action. We hope that’s you was get all answer regard Volume.
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