Volume

How busy was the market?

Volume is how much was traded during one period. For a stock, it's how many shares changed hands. For futures, it's how many contracts.

Think of your lemonade stand. On a normal day you sell 20 cups. One day you sell 200 cups. You'd want to know why! Something happened: a soccer game next door, a heat wave, a famous kid tweeting about your lemonade. Volume works the same way. When it suddenly jumps, something is going on.

Where to find it

Volume is usually shown as bars under the candles. Each bar lines up with the candle above it. A tall bar means lots of trading. A short bar means a quiet period. Many charts color each bar to match its candle.

Big or small compared to what?

There's no magic number. 10,000 shares might be huge for a tiny company and nothing for Apple. Traders compare volume to what's normal for that market, usually the last few weeks. "Twice the normal volume" means something. "10,000 shares" alone doesn't.

What volume adds to a move

Price tells you what happened. Volume tells you how many people were part of it.

• Breakout on big volume: lots of traders pushed price out of the box together. That's more convincing.
• Breakout on tiny volume: only a few traders took part. It's easier for that move to fizzle, and it's more likely to be a fake breakout.
• Pullback on small volume: in an uptrend, a dip with quiet volume can mean only a few sellers showed up. The buyers just took a break.
• Huge volume after a long run: sometimes a giant volume bar at the end of a big move means everyone who wanted in finally got in. With nobody left to buy, the move can run out of gas.

Look at the drawing. The breakout candles have tall volume bars. The little dip afterward has short ones.

A note about forex

Stocks and futures trade on an exchange that counts every trade. Forex (trading currencies) has no single exchange, so nobody can count everything. Forex charts usually show tick volume instead: a count of how many times the price changed. It's a rough guide to how busy the market was, not the real amount traded.

What goes wrong

• Volume is a helper, not a signal on its own. A big bar doesn't tell you which way price will go next.
• Volume is often low around holidays and at lunchtime, so a quiet bar may just mean people are eating.

Remember

• Volume is how much was traded in each period.
• Compare it to what's normal for that market.
• Big volume on a breakout makes it more convincing. Small volume makes it easier to fizzle.
• In forex, charts usually show tick volume, a rough guide.