What is Volume in Stocks?
Understand how trading volume confirms price movements and signals market strength.
Quick Answer
Volume is the total number of shares traded during a specific time period (usually per day). High volume means strong interest and validates price moves. Low volume means weak interest and questionable moves. Example: Apple trades 60 million shares daily (high volume = liquid). A penny stock trades 50,000 shares daily (low volume = risky).
Why Volume Matters
✓ Confirms Trends
Price rising + high volume = strong uptrend (many buyers agree). Price rising + low volume = weak rally (might reverse soon).
✓ Spots Breakouts
When a stock breaks resistance on high volume, it often continues higher. Low volume breakouts usually fail and reverse.
✓ Measures Liquidity
High volume stocks = easy to buy/sell anytime at fair prices. Low volume stocks = hard to exit, wide spreads, price manipulation risk.
✓ Warns of Reversals
Selling climax (huge volume spike while dropping) = potential bottom. Buying exhaustion (huge volume spike at top) = potential reversal down.
Volume Patterns
✓ Bullish Volume Pattern
Scenario: Stock breaks above $100 resistance
✓ Volume on breakout day: 10 million shares (3x average)
✓ Next few days: Volume remains elevated
= Strong breakout, likely continues higher
✗ Bearish Volume Pattern
Scenario: Stock breaks above $100 resistance
✗ Volume on breakout day: 2 million shares (below average)
✗ Next few days: Volume drops even more
= Weak breakout, likely to fail and reverse
High Volume vs Low Volume Stocks
| Feature | High Volume | Low Volume |
|---|---|---|
| Daily Volume | 1M+ shares | Under 100K shares |
| Liquidity | Easy to buy/sell | Hard to exit |
| Bid-Ask Spread | Tight ($0.01-0.05) | Wide ($0.10-1.00+) |
| Price Stability | Smooth movements | Erratic, easy to manipulate |
| Examples | Apple, Tesla, Microsoft | Penny stocks, obscure companies |
Common Questions
What's considered high volume?
Compare to the stock's average. If Apple normally trades 50M shares/day, 100M is high volume (2x average). Look for volume 1.5-3x above the stock's 50-day average to confirm strong moves.
Can volume predict stock prices?
Volume doesn't predict direction alone, but validates price moves. Price + volume together tell the story. Rising price + rising volume = bullish. Rising price + falling volume = bearish divergence.
Should I avoid low volume stocks?
Generally, yes. Low volume = high risk of getting stuck, bad fills, and manipulation. If trading small caps, only use limit orders and expect wider spreads.
Key Takeaways
- ✓Volume = number of shares traded; measures market interest and conviction
- ✓High volume confirms trends; low volume suggests weak, unreliable moves
- ✓Volume validates breakouts—high volume = real, low volume = likely fails
- ✓High volume stocks are safer and easier to trade (better liquidity)
- ✓Always check if volume is above or below the stock's average