When discussing volume analysis we must first look at the definition of “volume.” Volume, also known as trading volume, is the number of shares that are traded during a given period of time for a security or an entire index or exchange. When determining the trading volume, investors are looking at data that shows how many shares were transferred from one set of investors to another. It can show what took place in the past however it cannot specifically indicate whether or not the demand for a stock outweighs the supply. What investors can do is analyze the past volume action in order to anticipate possible future trends.

Many traders today will use volume analysis when day trading in order to analyze a stock’s price fluctuations. Volume can tell traders whether or not it is the right time to change their market position. When trading stock, the stock price typically lags behind fluctuations in volume. As a result traders will look at a stocks volume, and will review the stock price on the days when there is higher than average activity in order to confirm price reversals.

A useful volume indicator that investors will use is the accumulation distribution current. The accumulation distribution current examines price and volume and it is based on the theory that if there is a lot of volume supporting a particular price move then the price move is more significant. This volume indicator is used in conjunction with other technical indicators such as the Moving Average Convergence Divergence (MACD). The MACD is a technical analysis momentum indicator that shows the difference between fast and slow exponential moving averages . This volume analysis indicator is also used in conjunction with stochastics in order to confirm strength or weakness of the current price trend.

Another volume indicator used by day traders is the On Balance Volume (OBV). This indicator can tell the trader whether or not the price is moving up or down based on volume. Traders can also review the overall strength of the stock market during price movements that support the current trend of a particular stock using this indicator.

Volume analysis provides great indicators in support of other technical analysis indicators used when trading stocks. Please also read about Japanese Candlesticks which is a trading strategy used by some of the world’s most successful traders along with other forms of technical analysis. It is the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns . Combine these with your favorite technical analysis indicators, such as the moving average, and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds .

Please continue your technical analysis education and read about Relative Strength .