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Using Trading Volume as an Indicator for Stock Trades

Stock TickerPicker provides a variety of tools for helping you interpret stock price movements, and trading volume is one of them. Let’s look at how it can help you by telling you when a technical signal is more significant or less significant. Since when doing technical analysis you are looking in part for validation of the signals you are seeing, this is quite important.

Stock TickerPicker gives you Stock Chart Trading Volume

Here’s a standard Stock TickerPicker stock chart, showing the price movement. At the bottom of the price chart is a set of vertical gray and red bars, representing the volume of shares being traded (note that for realtime BATS exchange charts, this is just BATS exchange volume). Stock TickerPicker helps you hone in on the message the volume is telling you by coloring volume bars in red when the price closes down in that period, and coloring the volume bars in gray when the price closes up that period. So how to read a volume chart?

What to Look For in Trading Volume when doing Technical Analysis 

What you are looking for is spikes in volume. When the volume is high, that tells us that the market has “interest” (at least that period) in the stock: lots of traders are trading it, and in conjunction with the price movement, you can get a trading signal. High volume can also mean “conviction”: lots of traders confirming the direction of the stock movement. On the other hand, when the volume is low, that means that most of the potential trading volume is sitting out the current price movement, and if those traders were to jump in, they might send a different signal than what you are currently seeing.
A sudden increase in trading volume with an expansion of range may mean that the stock will probably continue in its new direction – lots of traders are pushing it (net) in that direction. High volume with a narrow trading price range likely means there is churning going on – lots of stock changing hands amongst traders, but general agreement on the price.
Finally, you might see volume pick up in anticipation of a big move in the stock. The buyers and sellers are now battling it out over the stock, and when one side wins, the stock may move strongly in that direction.
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