Should You Pay Attention to a Stock's Trading Volume?


Investors assess the expected price of the stock based on market information, and the price spread with the current price makes investors willing to trade, increasing trading volume, and adjusting prices. Although many studies have examined the impact of information search and news volume on the market, some do not consider the causality or simultaneity problem caused by time overlap between variables. The current study used the control-time-lag method to collect pre-opening information that has not yet been reflected in the Taiwan stock market during the weekend and how it affects the market. First, retail investors search for public information, and the trading volume increases but the prices cannot be changed, indicating that there may be noise traders. Second, because noise traders may search market noise, observing investors’ attention to predict stock prices is invalid.

What makes trade volume increase

As we explain below, part of the asymmetries in trade data come from the fact that, although ‘merchandise’ and ‘goods’ are equivalent in the dictionary, these two terms often measure related but different things. Second, the global openness index includes trade in goods and services, while merchandise exports include goods but not services. And third, the amount that country A reports exporting to country B does not usually match the amount that B reports importing from A. Indeed, if you compare the chart showing the global trade openness index and the chart showing global merchandise exports as share of GDP, you find that the former is almost twice as large as the latter.

The following visualization shows a detailed overview of Western European exports by destination. Figures correspond to export-to-GDP ratios (i.e. the sum of the value of exports from all Western European countries, divided by total GDP in this region). Using the option labeled ‘relative’, at the bottom of the chart, you can see the proportional contribution of each region to total Western European exports. Considering all these complex interrelations, it’s not surprising that economic theories predict that not everyone will benefit from international trade in the same way. The distribution of the gains from trade depends on what different groups of people consume, and which types of jobs they have, or could have.

Financial Calendars

The emergence of information makes investors make trading judgments and are naturally prone to occur on information-related stocks, which is also the attention effect of the information. Moussa et al. examined the impact of information on the market and distinguished information-related variables as information demand and supply . For stock prices, they concluded the direction of the price change depends on whether the news contains positive or negative information. For stock trading volume, because the information causes investors to pay more attention to the investment target, the tendency to be traded will be greater than those that have not been noticed. Hence, they found both information supply and demand volume are influential, and the information demand factor is more important.

The traders utilize trading volume as one of the factors used in their technical analysis while considering market trades. Every market exchange tracks its trading volume and provides volume data. Volume of trade numbers may be reported as frequently as once every hour throughout one trading day.

What volume is saying now

In particular, workers who lose their job can be affected for extended periods of time, so the positive effect via lower prices is not enough to compensate them for the reduction in earnings. It’s a scatter plot of cross-regional exposure to rising imports, against changes in employment. The vertical position of the dots represents the percent change in manufacturing employment for working age population; and the horizontal position represents the predicted exposure to rising imports . On the whole, the available evidence suggests trade liberalization does improve economic efficiency. This evidence comes from different political and economic contexts, and includes both micro and macro measures of efficiency. Company About Discover how we’re making the markets work for all investors.

So companies that outsourced jobs to China often ended up closing some lines of business, but at the same time expanded other lines elsewhere in the US. This means that job losses in some regions subsidized new jobs in other parts of the country. The interactive data visualization, created by the London-based data visualisation studio Kiln and the UCL Energy Institute, gives us an insight into the complex nature of trade. You can click on the option marked ‘Linear’, on top of the vertical axis, to change into a logarithmic scale.

What makes trade volume increase

Based on the service model, the same or similar products, accounts and services may vary in their price or fees charged to a client. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. High volume accompanied by sharp price movements against the trend signifies the trend is weakening, and/or is susceptible to a reversal. Traders prefer day trading stock with volume as it allows you to get into and out of a position quickly, with large or small positions.

Selling Volume

Let’s now take a look at trade in monetary terms – this tells us the importance of trade in absolute, rather than relative terms. The so-called trade openness index is an economic metric calculated as the ratio of country’s total trade to the country’s gross domestic product. Above we took a look at the broad global trends over the last two centuries. Let’s now zoom in on country-level trends over this long and dynamic period. The reductions in transaction costs had an impact, not only on the volumes of trade, but also on the types of exchanges that were possible and profitable.

What makes trade volume increase

If trade is causally linked to economic growth, we would expect that trade liberalization episodes also lead to firms becoming more productive in the medium, and even short run. The next chart plots the value how to increase your brokerage trading volume of trade in goods relative to GDP (i.e. the value of merchandise trade as a share of global economic output). Most trade theories in the economics literature focus on sources of comparative advantage.

Decreasing volume in a downtrend may indicate a coming reversal and a time to buy. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands. Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans. The data produced by third parties and made available by Our World in Data is subject to the license terms from the original third-party authors. We will always indicate the original source of the data in our documentation, so you should always check the license of any such third-party data before use and redistribution.

Market volume and off-exchange trading: more than a retail story

Over the early modern period, transoceanic flows of goods between empires and colonies accounted for an important part of international trade. The following visualizations provides a comparison of intercontinental trade, in per capita terms, for different countries. The first wave of globalization came to an end with the beginning of the First World War, when the decline of liberalism and the rise of nationalism led to a slump in international trade.

To do this systemically, the impact of the quantity of information and the level of information demand on prices and trading volume are discussed, respectively. However, the strength of the information supply can predict prices, but unlike some other studies, it is irrelevant between information search volume and prices. Retail investors in the Taiwan market search external information that cannot bring about the expected price changes. Investors’ search keeps the price unchanged but brings trading volume, and so-called noise investors may exist in the market.

The life of a financial instrument

Responses provided by the virtual assistant are to help you navigate and, as with any Internet search engine, you should review the results carefully. Fidelity does not guarantee accuracy of results or suitability of information provided. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. “Chase Private Client” is the brand name for a banking and investment product and service offering, requiring a Chase Private Client Checking℠ account.

Less Volatility – High volume stocks are less volatile as price changes are more fluid with the high volume of transactions processed. Stocks that change hands rapidly have fewer dramatic price changes. Second, this research expands the event study method to further examine the volume of information about the event. For example, Wang et al. analyzed a tax reduction policy event in Taiwan from August 2001 to early 2002. Fortunately, this study focused on the early period of the U.S.-China trade dispute as the sample period, constructing an indicator to capture the imposing tariff information volume.

BOND transfer to NYSE improves market quality

Trading decisions should be based on price movements first and foremost, as price movements determine profits and losses. Formulate your stock day-trading strategy based on price movements, then add in volume analysis to see whether it improves your performance. When trading volume is higher, you’ll have an easier time buying and selling large or small quantities of stock, because other traders are in the market, waiting to fulfill the other side of your trade.

  • However, more volume can help to ensure that the stock price moves more smoothly and gradually.
  • You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.
  • The following visualization, from the UN World Development Report , plots the fraction of total world trade that is accounted for by intra-industry trade, by type of goods.
  • included news sources such as the United Daily News, Economic Daily News, United Evening News, and Upaper in Taiwan, collectively covering a wide range of information.

News coverage – A company can make news for positive and negative reasons. Depending on the reason for the news coverage, trading volume may move higher or lower. Volume distributions of off-book trades , on-book trades , and the aggregate of both for a collection of 20 different stocks, normalizing the volume of each by the mean volume before combining. The dashed black lines are for the slope found by the Hill estimator and are shown for the largest 1% of the data.

Lower-than-average volume shows lower interest in the stock on that day and likely smaller price movements. Charts depict trading volume in vertical bars, with the bar showing how many shares changed hands over a particular time period. In trading, the term “volume” represents the number of units that change hands for stocks or futures contracts over a specific time period. Traders rely on it as a key metric because it lets them know the liquidity level of an asset, and how easily they can get into or out of a position close to the current price, which can be a moving target. Real traders, who transact in the market based on their own evaluations and expectations of market movements, only make up 10% of the total volume in US markets.

Technical Analysis

High trade volume can also indicate that stock orders are being executed quickly and that the market is highly liquid. In other words, high volume can mean that buying and selling the stock is relatively easy. There are a couple of terms that can help give investors a better idea of the size of a company and how many shares are actually available, including “float” and market capitalization, or market cap. Consider the chart below, which shows the average daily volume for the Dow Jones Industrial Average. The top half of the chart shows the daily price of the Dow and the bottom half shows the corresponding daily volume. Price moves made on low volume may be said to “lack conviction” and could be viewed as being less predictive of future returns.

Leave a Reply

Your email address will not be published. Required fields are marked *