What is the use of volume of traded shares on a stock exchange?
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How can stock traders use that information?
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Answer:
Day traders pay close attention to volume...in fact I suspect that it occupies at least 2/3 of their decision making. To a day-trader increasing volume with price increasing as well is a huge buy signal and allows they to easily purchase a stock....then the moment price starts to falter and they have their 2-10% profit they will bail on the stock quickly when the volume is high and there are many to people still trying to buy. Volume is less important to a longer term investor...even a short term swing play of 1-2 weeks. This is because you are not depending on selling or buying the stock in a few minutes. You set your price with the expectation it will be bought or sold within a reasonable period. That said most investors unless they have very good reasons would avoid most stocks with a trading volume of less than 25,000 shares /day...if they normally bought 1000 shares per day themselves, they would like perhaps 250,000 shares per day....basically so they could complete their trade in a day.
easy_pea... at Yahoo! Answers Visit the source
Other answers
It can give you an idea of of the liquidity of the stock. Technical analysts have a number of indicators such as the tidal force indicator which multiplies the volume with the difference between the days close and that of the previous day, ( the idea being to indicate if money is moving in or out of the stock ). Of course the usefulness of all technical indicators are indeterminate.
John W
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