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Volumes: The Key to Understanding Liquidity in the Market

Volume is the number of shares traded in a specific time frame and is a crucial metric for investors to understand. 

In the stock market, liquidity is crucial for investors because it ensures they can buy or sell stocks easily without facing price disruptions. High liquidity is generally considered a positive factor for a stock, implying a lower bid-ask spread and higher trading volumes.

What is the volume in the stock market?

Volume is like the number of drinks being served at the party. It’s the total number of shares bought and sold on the stock exchange. A high volume means a lot of action is happening in the market, making it easier for investors to buy and sell without causing significant price movements. 

A top-volume share may indicate more active participation by investors and traders in the market, which can lead to greater price volatility.

How do you read the trading volume of a stock? with example

Let’s consider the example of Tata Consultancy Services (TCS). If TCS’s stock price is rising and the volume is also increasing, it suggests that investors are bullish on the stock and are actively buying it. 

Conversely, if TCS’s stock price is falling and the volume is also increasing, it suggests that investors are bearish on the stock and are actively selling it. By monitoring the volume on the stock chart, investors can make informed decisions about when to buy or sell the stock.

Use of stock volume to identify the strength of the move

Volume can also tell you how strong a move is in the market. It’s like feeling the energy in the room when a favourite song comes on. A sharp increase in volume can indicate a strong move in the market, while low volume may suggest that the move is weak and not likely to be sustained. 

For example, if a stock has been trading in a range for a long time but suddenly experiences a sharp increase in volume, you know something significant is happening in the market.

Volume is an essential tool for identifying the strength of a move in the stock market. A high volume share usually indicates that a stock is in a strong uptrend or downtrend, and low volume suggests that the market is indecisive or consolidating. 

By analysing the relationship between the stock price and volume, traders can determine whether a particular move is likely to continue or reverse.

Volume Trend Table

Check the volume trend table if you want to know how volatile the stock market is. This table shows the volume trend over a specific period, and it’s a great tool for identifying shifts in market sentiment. The volume trend table measures the stock market’s tremors.

The volume trend table helps investors identify the volatility of the stock based on the volume traded. It provides valuable information about the market’s sentiment towards the stock and can help investors make informed decisions.

Calculating Stock Volume

Calculating the stock volume is simple – all you need is the number of shares traded during a particular time period. 

The formula for calculating the stock volume is straightforward. Volume equals the number of shares traded during a particular time frame. 

For example, if 100,000 shares of a company were bought and sold during a day, the volume for that day would be 100,000 shares.

How does Volume Affect the Stock Market?

The relationship between volume and the stock market is complex, but there are a few key ways in which volume can affect market activity:

High volume can lead to increased volatility: When there’s a lot of buying and selling activity, it can create fluctuations in the market that can be difficult to predict.

Low volume can lead to decreased liquidity: If there aren’t enough buyers and sellers in the market, it can be difficult to enter or exit a position without affecting the stock’s price.

Volume can indicate shifts in market sentiment: If there’s a sudden increase in buying or selling activity, it can be a sign that investors’ sentiment about the stock has changed.


In conclusion, volume is the lifeblood of the stock market. It provides crucial information for investors to make informed decisions, and understanding its significance can help you navigate the stock market with confidence. 


How do you know if volume is buying or selling? 

In the Indian stock market, volume can indicate whether there’s more buying or selling. A stock with a high volume of trades could mean strong interest from buyers and sellers. If the stock price increases with high volume, it suggests buying pressure. Conversely, if the price decreases with high volume, it indicates selling pressure. Traders often use volume indicators like the On Balance Volume (OBV) to assess the market’s direction based on volume changes.

Is low volume bullish or bearish? 

Low volume can be interpreted in different ways. In a rising market, low volume might suggest a lack of conviction among buyers, potentially leading to a bearish outlook. However, during a pullback in an uptrend, low volume may indicate that the pullback is temporary, and the bullish trend is still intact. It’s essential to consider other factors like market news and investor sentiment for a comprehensive analysis.

Is it good to buy stocks with low volume? 

Buying stocks with low volume in India can be risky because low volume often equates to lower liquidity, making it difficult to sell the stock later. Low-volume stocks may also be more volatile and susceptible to price manipulation. However, if a low-volume stock has strong fundamentals and good business potential, it could be a good long-term investment. It’s advisable to invest cautiously and consider using excess funds for such investments.

Which volume indicator is best?

Several volume indicators are popular among Indian traders. The On Balance Volume (OBV) and Money Flow Index (MFI) are commonly used. OBV helps track cumulative buying and selling pressure, while MFI combines price and volume to identify overbought or oversold conditions. Volume-Weighted Moving Average (VWMA) and Accumulation/Distribution Line are also valuable for analysing volume trends. Ultimately, the best indicator depends on your trading style and strategy.

What is ADV in trading?

ADV, or Average Daily Volume, is the average number of shares traded per day over a specific period. In India, ADV is used to gauge a stock’s liquidity. A higher ADV suggests that the stock is more liquid, making it easier to buy or sell without significantly affecting the price. Investors and traders often look at ADV to decide whether a stock can accommodate large trades without excessive slippage.

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