when evaluating whether or not to invest in a companies stock why is it important to look at the volume?

Question

when looking at a companies stock why is it important to look at the volume and average volume? is that an indicator of something if you are considering buying/selling the companies stock?

Answer 1

For investors, I do not think it is something that is important to consider. For traders it is one of the things they are interested in, because they are hoping to catch the stock on an upswing and increasing volume might be an indication of an upswing.

Answer 2

Volume is several things, but one is an indication of who is driving the change.

Say the volume is high and price is rising. At this point there are people doing what the good Baron Rothschild advised, "Buy cheap, sell dear"--you will have to pay more money to pry shares from those who might be persuaded to part with some. Volume and price direction tell that people are buying, and how eager they are to buy.

Say the price has been rising and the volume is falling. That means whatever enthusiasm was sending the price up is waning. The momentum is all that sustains the price. You would look for one of three things: (1) static, or sideways, prices, (2) falling prices, or (3) more good news to spur the prices higher still. Volume then tells something of momentum.

Say the price goes down, but only so far, then goes up, but only so far, then goes down but only so far, then goes back up, but only so far. These are floors and ceilings of price support. The specialists, and related interested parties, have collectively set themselves a window of opportunity, a range of value for the stock. When a stock is falling because it was no longer interesting to the herd, the trading volume starting to diminish as price drifts down, but the volume increases and the trade drop rate slows, then someone is starting to say, as Rothschild did in words to this effect, "Hey, this is getting cheap, and I'm going to be getting." Volume tells you then, now may not be a good time to look for an opportunity to short this stock, because it may not be going much lower for a while.

You get the picture. Price, rates of change (slope of the graph trend), these are part of the picture of what the market is doing. Volume is part of that picture.

Added: There is a fun thing to watch as well. The 'volume' of insider trades. I remember watching one company and the price stopped rising. People said it was because one of the top brass had begun selling his shares. The price started falling, but then stopped falling. People said it was because one of the top brass began buying his shares. What some were interpreting as future expectations, was instead some bright bulb doing a Rothschild, selling when the price is dear, and buying when the price was cheap again. It had nothing to do with internal expressions of the company's future prospects. Today, there are more rules regarding how the "insiders" can trade the company shares they own. Most "schedule" purchases and sales well in advance and document well their reasons to avoid a visit from a 'suit' from the SEC.

Answer 3

volume is important for liquidity reasons.

If a stock trades 50,000 shares per day, and you want to get a 1,000,000 share position, you need to understand the difficulties you might face in trying to unwind that position.

beyond that, it's a lot of speculation.

If there is high volume and big block trades, sure that means institutions are buying, but it also means institutions are selling.

Answer 4

Volume helps you determine WHEN to invest - not if.

Look at high volume as the equivalent of a long line at the store.

It is a reliable indicator because talking heads in the media can be telling you what they think is happening or what they think you should be doing but volume tells you what people are actually doing.

Answer 5

What i've got faith you're attempting to "get at" on your question is cost dominance. a stable product it is in intense call for gives you an greater capacity to command a income, and command top type costs. reported yet in any different case, determining to purchase companies without ability to command a top type cost, or no call for, is marginalizing your investment dollar. As you recommend, positioned you cash with the utmost growth skill interior the utmost growth sector, and your returns are in all probability to exceed the industry - regularly by way of fact of pricing skill. as quickly as that pricing skill starts off to wane, it's time to have researched the subsequent threat so which you're arranged to transition into it.

Answer 6

its an indicator of whether buying is increasing, which is usually a good sign to buy if you have the stock is fundamentally good. this a key point in some investment strategies.

Answer 7

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