Is volume good for stocks?
An uptrend paired with increasing and/or above average volume implies investor enthusiasm for that stock or asset is strong, which could lead to more buying and even higher prices.
To reduce such risk, it's best to stick with stocks that have a minimum dollar volume of $20 million to $25 million. In fact, the more, the better. Institutions tend to get more involved in a stock with daily dollar volume in the hundreds of millions or more.
Why It Matters. If you see a stock that's appreciating on high volume, it's more likely to be a sustainable move. If you see a stock that's appreciating on low volume, it could be a dead cat bounce. Logically, when more money is moving a stock price, it means there is more demand for that stock.
Volume reflects the level of investor activity in a particular stock. High volume suggests a strong interest in the stock, either from buyers pushing the price up or sellers driving it down. Conversely, low volume can indicate a lack of conviction or indecisiveness among investors.
Volume is often viewed as an indicator of liquidity, as stocks or markets with the most volume are the most liquid and considered the best for short-term trading; there are many buyers and sellers ready to trade at various prices.
Investing in low volume stocks can put an investor's portfolio at unnecessary risk for a number of reasons. Typically, any stock that trades at fewer than 10,000 shares a day is considered a low-volume stock.
Volume is an important indicator in technical analysis because it measures the relative significance of a market move. The higher the volume during a price move, the more significant the move; the lower the volume during a price move, the less significant the move.
We want to know if, from the current price levels, a stock will go up or down. The best indicator of this is stock's fair price. When fair price of a stock is below its current price, the stock has good possibility to go up in times to come.
The reality is that low-volume stocks are usually not trading for a very good reason—few people want them. Their lack of liquidity makes them hard to sell even if the stock appreciates. They are also susceptible to price manipulation and attractive to scammers.
Buying volume is the number of shares, contracts, or lots that were associated with buying trades, and selling volume is the number associated with selling trades. 3 This concept is often confusing for new traders because every trade requires both a buyer and a seller of the given asset.
How to use volume when trading?
Volume can be used to confirm trading signals by assessing the relationship between volume and price movements. For example, a bullish signal accompanied by high trading volume adds weight to the potential upward move, while a bearish signal supported by high volume reinforces the potential downward move.
High Volume Stocks and Low Volume Stocks
Meanwhile, low volume stocks are more thinly traded. There's no specific dividing line between the two. However, high volume stocks typically trade at a volume of 500,000 or more shares per day. Low volume stocks would be below that mark.
![Is volume good for stocks? (2024)](https://i.ytimg.com/vi/fRfPJ_HbaYE/hq720.jpg?sqp=-oaymwEcCNAFEJQDSFXyq4qpAw4IARUAAIhCGAFwAcABBg==&rs=AOn4CLDxSDGVz81hIfaac6WoucRSo433fg)
Average PE of Nifty in the last 20 years was around 20.* So PEs below 20 may provide good investment opportunities; lower the PE below 20, more attractive the investment potential.
An uptrend paired with increasing and/or above average volume implies investor enthusiasm for that stock or asset is strong, which could lead to more buying and even higher prices.
If a stock with a high trading volume is rising, it usually means there is strong buying pressure, as investor demand pushes the stock to higher and higher prices. One the other hand, if the price of a stock with a high trading volume is falling, it suggests that there is a lot of selling pressure.
- Hindalco Industries Ltd. LTP. 699.15. GAIN. ...
- Bharti Airtel Ltd. LTP. 1,429.7. GAIN. ...
- IndusInd Bank Ltd. LTP. 1,434.25. LOSS. ...
- HDFC Life Insurance Company Ltd. LTP. 607.35. GAIN. ...
- Kotak Mahindra Bank Ltd. LTP. 1,852.7. GAIN. ...
- HCL Technologies Ltd. LTP. 1,519.4. LOSS. ...
- Sun Pharmaceuticals Industries Ltd. LTP. 1,568.4. GAIN. ...
- Cipla Ltd. LTP. 1,509.9. GAIN.
The reason behind this is that day traders need to implement their entry and exit strategies quickly and with ease. For this to be successful, one needs to trade stocks with high daily volume – minimum of 1 million. For swing traders, a lower volume is more attractive – around 100,000 to 500,000 shares within a day.
It can be easy to confuse your financial market animals — both bulls and bears are large, strong and known for territorial behavior. But in a bull market, stock market values rise at least 20% from a recent low, whereas in a bear market, average stock values drop by at least 20% from a recent peak.
So, low trading volume can indicate a lack of interest in either buying or selling. That means it could be bullish if low volume occurs in a downtrend. It could be bearish if it's noted in an uptrend.
Indicator of a rising market: When the market is going up, higher volume is like a thumbs-up sign for a rising market. It means more people are buying and interested in a stock, which can lift prices. But if prices rise with less volume, it could mean people are not interested in a particular stock.
What is a good volume ratio for stocks?
Up/Down Volume Ratios greater than 1.0 are considered to be Bullish while ratios less than 1.0 are regarded as Bearish.
Name | Sub-Sector | Market Cap (Rs. in cr.) |
---|---|---|
SJVN Ltd | Renewable Energy | 51,786.84 |
Sun Tv Network Ltd | TV Channels & Broadcasters | 30,665.69 |
UTI Asset Management Company Ltd | Asset Management | 13,106.63 |
Oberoi Realty Ltd | Real Estate | 64,530.31 |
- Consistent Growth. ...
- High Return on Equity. ...
- Low Debt Levels. ...
- Solid Management. ...
- Rising Dividends. ...
- A Portfolio of In-Demand Products. ...
- The Bottom Line.
Metrics like earnings growth, price-to-earnings (P/E) ratio, and profit margin can potentially help isolate possible danger signs for a stock. Traders often compare a stock to its sector and see how it's doing compared to other stocks. Case in point: the P/E ratio.
In the wide world of stocks, "volume" represents the number of shares traded during a defined period, typically a day. You'll often see the full term spelled out, too. When you're looking at the stock market, "volume" is the same thing as "trading volume."