Welcome back everyone to the 7th post of the series, Volume. Due to popular demand, let me clarify all you need to know about volume and its impact on Technical Analysis in this post, before I move on to chart patterns as well as trading strategy in the following post. Volume is an important factor of Technical Analysis which often overlooked by many analysts.
What is Volume?
Volume is the total number of shares or securities being traded in the entire market over a period of time. For instance, on a particular day, 1,224,354 shares of a particular stock listed under Singapore stock exchange are being traded. The number “1,224,354” refers to the trading volume of that stock.
There are 2 types of volume that you normally encounter:
1) Time based volume
Time based volume refers to the bar charts that you see at the bottom of most stock or securities price charts. These volume bars change according to the time frame that you set for the chart, e.g. if your candlestick is set to daily, then the volume shown will be daily trading volume, same goes with weekly, monthly, etc. Average of these volumes is often called Average Daily Trading Volume (ADTV).
2) Price based volume (also known as market depth)
Price based volume refers to the number of buy and sell order that you see on most order books, just like a queue. There is “buy lot vol” and “sell lot vol” next to every single stock price. This indicates the number of lots that buyers and sellers willing to purchase or let go at the different stock price. Most stock brokers are using computer algorithm to execute trade when there is a price match between buyers and sellers. Sometimes you may notice that your order may not get executed even though your asking or selling price is equal to the market price. This is because simply there are insufficient number of buyers or sellers at the price that we are asking or bidding. For every matched trade, daily trading volume will increase as well.