Trading volume indicates the number of shares traded in a security or an entire market during a given period of time. If you are looking only at the price changes in a stock, you will get to know only a part of the story. To get the full picture, you need to also ascertain the volume. This is necessary because you cannot tell how meaningful a price gain or price drop is until you see how much volume is behind it. It is something like being told over the phone that you got a leak in your kitchen pipes. You will be eager to know whether it is just a little trickle or a flood like situation. You would like to check the volume of water coming through that leak to gauge how serious it is. Same is the case with stocks. Checking the relative trading volume is the only way to get an accurate picture about what the price movement actually means. Continue reading “Importance of trading volume to investors”