Understanding Online Trading Volume
Online trading volume is one of the most important indicators you should know about. According to Morgan Stanley, trading volume is “…a measure of the number of stocks, bonds, futures contracts, options, or other investments options that are sold in a specific period of time, such as a day. The volume of trades is often linked to volatility in the market, since as more investors buy and sell, prices are apt to rise and fall more rapidly.”
Monitoring Volume
Typically, online trading volume is monitored and reported daily, however it is not uncommon for some securities to be watched for a longer period of time to gauge its volatility.
The word volume reflects the amount of shares either bought or sold during the course of the day (or time period being used). For example, if Sarah either bought or sold 500 shares of “Stock X” on one day, the volume would be 500, regardless of the type of transaction that took place.
Setting Strategy
Online trading volume should be monitored by online investors as it is the main online trading indicator. Many investors compare the relation of volume pattern and price movement to help develop their online trading strategy. When implementing an investing strategy based on trading volume, investors should analyze a set period of time for the trade (such as 30 days) to help figure out what is considered normal volume for a particular stock.
The term “volume” in reference to online trading, is quite simplistic in nature. However, there are nuances and patterns that a novice investor may not fully comprehend. Commonly, online trading volume is used for technical analysis of the market and the movements can be a strong indicator some type of market shift.
