Why tracking volume is a key factor in stock analysis

March 26, 2022 12:50 AM AEDT | By Aayush
Follow us on Google News:


  • Stock volume refers to the number of shares being traded over a given period of time and illustrates the forces of demand and supply in action.
  • Volume is used to validate the price behaviour.
  • Abnormally high volume in a stock tells that a big player is at the table.

A trade that takes place on a stock exchange provides two pieces of information to an analyst – the price at which the trade happened and the quantity of shares (volume) that were being traded in that transaction. While most of the analysts focus on price only, a proficiency in volume analysis is a rare skill, which if honed can provide deep insights into the analysis of a security.


Image Source: © 2022 Kalkine Media® 

Volume is an illustration of forces of demand and supply at play, which ultimately is the fuel behind any price change and is best understood when studied in tandem with the price move. Let us look at three major reasons why you should account for volume in your stock analysis. 

Read More: Three technical indicators to help gauge market volatility 

  1. Volume validates price

Volume plays a critical role in the confirmation of the existing price trend. It simply answers the question of “how many?”. When there is a price rise or fall, backed by higher participation of masses then it validates the price move as there has been a high level of consensus in the market regarding the new price.

In the same way, if the stock has moved significantly up/down but lacks investors participation, then the new price movement could be doubtful, as only a few investors have had participated. This also implies, that the trend could soon reverse. 

2. Volume: An indicator of liquidity 

Another valuable piece of information volume provides is the liquidity of the stock. Liquidity is one of the major factors that astute investors look for while investing in a company’s stock. Liquidity is simply the abundance of buyers and sellers in a particular scrip which helps investors to buy or sell high quantities without any impact cost. 

Higher volume means higher liquidity – the ability of a stock or other instrument to be exchanged without impacting the market price. For e.g., an investor trying to buy an illiquid stock might single-handedly end up increasing its price quite a bit, but that might not be the case when it comes to a liquid stock.

3. Volume reveals activity of large players 

Oftentimes, investors try to copy the portfolio of a well-known investor or track the trading activity of promotors of the company such as directors, CEO and other board members. Some investors also prefer large institutions. One common indicator to track all this activity is to look at volume of a stock.

Whenever big fishes enter a stock, they might hide their holdings from the public in some cases; however, what they cannot hide is their unreasonably high volume, which gets noticed through exchanges’ volume data. Although one might not be able to tell which investor has shown his/her interest, abnormally high volume does tell that a big player is at the table.

Bottom Line

In Technical Analysis, an investor tracks both – price and volume activity of a security in order to draw a meaningful conclusion. However, volume being slightly underrated by many, is an equally powerful indicator which can help investors read price action and make much deeper insights into the past and current price behaviour of a stock.

Read More: Fretting over increased market volatility? Here’s what you can do


The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.

Top ASX Listed Companies

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK