Volume is a useful measure of trading enthusiasm that can tell traders a lot about the mood of the market, so it helps them to guide their trading decisions.
There are a buyer and a seller in every transaction, and every time two sides agree on a price for an asset, the exchange that they are using takes note of the transaction and adds it to the volume tally.
In trading, volume means how many shares or contracts were traded over a given period, usually a day. Every exchange measures how many transactions like this happened over the course of an hour, a day, a week, a year, so for every time period traders can see a record of the trading volume.
Trading volume is a useful measure for any asset, whether it’s a share, bond, currency, or something else, but volume can be measured in different ways. For example, if someone sells 5 BTC for $50,000 each, the volume of that transaction can be either $250,000, or 5 BTC, according to how you want to measure it.
With shares, the trading volume is a measure of how many traded within a set time. So if 3500 shares were traded in one trading week, its weekly volume would be 3500 shares.
Traders are always keen to understand how strong a trend is, so they often look to the volume indicator to help them get a sense of it. If price volatility is seen alongside high trading volume, this can be a sign that the price move makes sense and has integrity. On the other hand, if a price move is seen alongside low trading volume, it may show that the trend is not fundamentally robust.
Price levels occurring alongside high volume may also point traders towards the ideal entry and exit points for a particular trade that they might be setting up.
Usually, a rising market will be seen alongside rising volume, as ongoing interest from buyers continues to elevate prices. If volume goes up during the course of a downtrend then this may point to increasing pressure to sell.
Reversals, exhaustion moves, and U-turns in price direction are often seen alongside a spike in volume because the greatest number of buyers and sellers are in the market and driving activity at such times.
Volume indicators often include a moving average, which measures the volume of the candles over a specified period to arrive at an average. It’s another useful tool that helps traders understand how strong the current market trend is.