The definition of volume
Volume is the number of contracts bought and sold over a given period. It can be measured monthly, weekly, daily or smaller timeframes. The most common measure is per day. In tradingview the volume can be seen below the stock chart as a bar chart. These volume charts can be analysed to identify trends in volume similar to price.
In the image above, the volume bars can be seen at the bottom.
I mentioned in the previous post that the USOIL price was at the excess phase. It can be seen that there was a pullback and recovery. It is likely that the oil price will see further declines.
The significance of volume
Volume is an important indicator in the level of interest a stock or crypto currently has. It is wise to compare current volume against historic volumes. If the current volume is high then there is increased interest, in reverse low volumes indicating a decline.
Low volumes also normally have very little movement in prices. It is also important to day traders as high volumes indicate high liquidity in a share or stock. It is important to be able to buy and sell stocks without impacting market price significantly; otherwise there is a risk of getting lower returns than expected.
Using volume
Volume confirms price trends. If the volume is increasing it is confirming the current trend. In the case where the volume is reducing it is indicating a possible trend reversal.
In the figure above the bitshares to bitcoin ratio is analysed. There are signs of a decrease in volume in a downtrend. This signals a reversal in trend and it can be seen that the price started to move upwards at the end of this movement.
If the volume was increasing in the figure above it would be confirming the trend and a continued downtrend would be expected.
Till next time,
Tinus
** Images courtesy of tradingview.com