Volume indicates transaction that is happening during trading hour.
With volume, we can also determine the intensity of the stocks.
Basically, volume is recorded in bar in chart or we call it volume bar.
In chart, it is located below the price.
For example:
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| Fig. 25A |
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| Fig. 25B |
High volume bar means high interest of investors.
Low volume bar means low interest of investors.
High volume during trading day doesn't means more buyer than seller.
This is totally wrong.
Even though the volume is high during trading day, buyers and sellers always equal.
In addition, volume indicates the liquidity of one stock.
In the US market, one stock is liquid if the average daily transaction at least 500.000 shares.
What if we buy a stock that is not liquid?
We will find it hard to sell the stock because of the less interest of the buyers.
In this case, we see from the spread of bid and ask.
Example of the not liquid stock (Fig. 25C):
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| Fig. 25C |
Compare it with this liquid stock (Fig. 25D):
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| Fig. 25D |
Here's the relationship between price and volume:
1) price up & volume up = bullish
2) price up & volume down = bearish
3) price down & volume down = bullish
4) price down & volume up = bearish
Another relationship of price and volume:
If volume high, but the price is just going sideways, this indicates accumulation or distribution.
