In trading lingo, volume is the number of shares traded during a certain period of time. A volume measurement usually appears in the bottom quarter to bottom third of a chart. Figure 3-3 is a chart of Google showing roughly 60 days leading up to July 19, 2007.
In the bottom of the chart in Figure 3-3, daily volume for Google's stock has been between 1 and about 11 million shares per day during this period. Notice the second trading day in July, which was July 3, just before a midweek Independence Day holiday. That was a half day for the market, and the volume measurement is barely a blip. On the other end of the spectrum, have a look at the high volume on the last day of the chart. That high volume came in anticipation of the earnings that were to be released after the market closed. And the volume measurement on the last day of the chart doesn't even include the 4.5 million shares traded after the 4 p.m. close!
Many technical analysts put quite a bit of emphasis on volume as it relates to certain chart patterns. For instance, if a stock trades down to what's considered a support level (flip back to Chapter 2 for more info on support levels) on a day with significant volume, many traders may give this support level more credence and consider buying. The reason is that the increase in volume indicates a high level of buy interest emerging at this level. If support is tested on a low volume day, such as July 3, a trader may wait for more volume to trade to confirm this support level. Low volume days sometimes contain unreliable price action where the price has whipped around due to a lack of liquidity.
Was this article helpful?