Trading Volume and Volume Strength

Trading volume a.k.a., volume of trade measures the number of shares traded for a security in a given period. It plays an important role in technical analysis and features prominently among some key technical indicators. Volume can be an indicator of market strength, as rising markets on increasing volume are typically viewed as strong and healthy. Trend confirmation is an important function performed by volume data. A price jump in isolation cannot be considered a strong enough signal of investor confidence. However, when coupled with significant trading volumes, it sends a strong signal that investor sentiment is optimistic.

When prices rise or fall on increasing volume, the trend is gathering strength to the up or downside. On the other hand, an increase in prices coupled with decreasing trading volume can warn of a lack of investors’ interest in the markets, which can lead to a reversal of booms. When prices reach new highs or new lows on decreasing volume, a reversal might be taking shape.

Volume is also an important indicator of liquidity in any market. A market with high trading volumes suggests that multiple buyers and sellers are ready to trade. It makes trading extremely liquid and desirable in the short term.

BullLabs.com provides various types of volume data to help with stock investment and trading. The intraday volume and 3-month average volume data are provided for individual stocks as well as industry and sector indexes in various pages on the website. In additional to the current trading volume, there is also a unique “volume strength” information. The volume strength is the ratio of the current trading volume vs. the 3-month daily average volume of a stock or index, normalized towards the elapsed portion of time in the current trading session. The normalization takes into considerations of after-hour trading volumes as well as the distribution variance in different time of the day and week. For example, volume tends to be higher near market open and close than other periods in the day.

Volume information are available on various pages in BullLabs.com. In the home page, one can get the summary of the trading volumes of all the sectors from the entire market with just a glimpse. Similar information are available for list of industries under each sector and then the list of individual stocks under each industry. In many of these pages, instruments with high volumes are highlighted in bright color, indicating may be unusual activities worth noting.

For tree map users, the volume information are available on the popup box when hovering the mouse cursor over a sector or an industry. The volume information for individual stocks can be viewed when navigating to the second level of the tree map.