Let us say that the volume of a share on a particular day is two crores. It means that these many shares were bought and sold on that day. The data on volume as such, may not be a piece of useful information when viewed separately. However, this data can be meaningful only when used along with support and resistance levels.

Let us say that the volume of a share on a particular day is two crores. It means that these many shares were bought and sold on that day.

Let us say that the stock of xyx company cut the resistance level and moved further up. As it has broken through a crucial level, one can expect the price to move even further up shortly.

Take the example of another share ABC, where 10 lakh shares are traded every day. Now let us assume that on a particular day, only three lakhs shares were traded. It means that the volume of this share on that day was much below the average. It indicates that most of the big investors were not trading on that day. They may embark on a panic selling the next day and bring down the price.

The importance of volume is such that the majority of the traders would not purchase a stock unless the volumes are high, even though it may have cut a crucial level. The opposite also holds good because, if the price goes down when the volume is low, it means that most of the investors are not trading. They may engage in a buying spree to take up the price once again.

Support and Resistance levels are not of much use unless supported by reasonable volume. The volume must move along with the trend. If the price is going up when the trend is upwards, the volume must also increase. If the relationship between price movement and volume begins to deteriorate, it is a signal that the trend is weakening.

TIPS ON ANALYSING VOLUME

• One must always study the price movement along with the associated pattern of volume. Even if the price of a stock may appear to go up, it must be confirmed by the volume traded.

• The analyzing volume of the selling that has happened above the resistance level, will help estimate the time that the stock will remain at this level.

• To separate a real from a false breakout above the resistance level, a volume that is well above the normal is needed,

• In a positive uptrend, the volume of the stock must also go up along with a price increase. Here the volume is an indication that there is a demand for the stock, and the chances for the uptrend to continue is more.