Lesson 8 — What Is Trading Volume?
Learn how volume shows the amount of trading activity behind price movements.
What Is Trading Volume?
Trading volume tells us how many shares changed hands during a particular period.
Imagine a Busy Market
Think about an Australian share being actively traded during the day.
More buyers and sellers participating
When many shares are changing hands, trading volume is high.
Volume Is Measured in Shares
Suppose an ASX-listed company records:
shares traded during the day.
The day's trading volume is 2.5 million shares.
High Volume vs Low Volume
Taller volume bars represent more shares traded during that period.
Where Do You See Volume?
On many stock charts, volume appears underneath the price chart as vertical bars.
Price and Volume Work Together
Technical analysts often study price and volume together rather than looking at either one in isolation.
Why Does High Volume Matter?
A large increase in volume can indicate that many market participants are active.
We need to examine what the price is doing at the same time.
High Volume + Rising Price
A rising price accompanied by increased volume can show strong participation, but confirmation from the wider chart is still important.
High Volume + Falling Price
Heavy trading activity during a falling price can indicate strong selling participation. Context remains essential.
What Is Low Volume?
Low volume means relatively fewer shares are being traded during the selected period.
Quiet trading activity
A low-volume move may require more caution because fewer participants are involved.
Volume Is Relative
There is no universal number that is automatically "high volume" for every share.
Volume Spikes
A sudden increase in volume is called a volume spike.
Traders often investigate what caused the sudden increase in activity.
Volume Can Help Confirm a Breakout
Suppose a share moves above an important resistance level.
Higher volume can provide additional evidence that the breakout has meaningful participation. It does not guarantee that the breakout will succeed.
🇦🇺 Australian Market Example
Imagine an ASX-listed share normally trades around 800,000 shares per day.
Today:
were traded.
Trading activity is significantly higher than usual. A technical analyst would investigate what happened to the price and whether there was a meaningful market event or technical setup.
🧠 Volume Detective
A share normally trades 500,000 shares per day. Today it trades 2 million shares while the price breaks above resistance. What has increased?
Lesson Complete!
You now understand what trading volume is and why technical analysts study it alongside price.
Remember:
Volume = shares traded during a selected period.
Next: Why Volume Matters
Trading volume is one of the most important pieces of information on a stock chart. It tells us how many shares were traded during a particular period. By studying volume alongside price, technical analysts can better understand the level of market participation behind a price movement.
For Australian investors and learners, volume can be particularly useful when studying ASX-listed shares. A price movement accompanied by unusually high volume may deserve closer attention, while a price move on very low volume may need additional confirmation.
Key Learning Points:
- Trading volume measures the number of shares traded during a selected period.
- Volume is normally displayed as vertical bars underneath a price chart.
- Taller bars represent greater trading activity.
- Shorter bars represent lower trading activity.
- Volume should be analysed together with price rather than on its own.
- A sudden increase in activity is known as a volume spike.
- High volume does not automatically mean a share will rise.
- Volume can sometimes provide additional confirmation when a price breaks through an important level.
- Volume is relative to each share’s normal trading activity.
Australian Example:
Imagine an ASX-listed company normally trades around 500,000 shares per day. If 2 million shares are traded on one particular day, trading activity is significantly higher than normal. A technical analyst may then examine what happened to the share price and whether an important chart event occurred.
Key Takeaway:
Price tells you what happened. Volume tells you how much trading activity was behind it.
Volume becomes even more useful when combined with trends, support and resistance, breakouts and other technical-analysis tools.