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What is Volume?

Volume is a count of trades in a security or market, or their derivative instruments and can be indicative of trends and sentiment.

Volume is the number of trades in a security or market in a given time. Trade volume is important because it helps analysts pick apart the factors driving a trend or get an idea of the strength of a trend.

Potential buyers and sellers can push the Bid and Ask prices around at will, hypothetically, but a trade only occurs when the buyer and seller transact business; also, even only a minimal number of trades can move prices around, but this is not indicative of a strong trend — a few trades more and the price is where it was before.

High volume could indicate that a trend is picking up momentum, and with many open positions in a security, there is likely to be some support or resistance to movements outside of a standard deviation. Or, if there's a big sell-off, for example, it could indicate that a trend has ended. If prices are rising and falling but there are more buyers in the troughs than sellers in the peaks, it is a bullish sign.

The are many volume indicators, such as On Balance Volume (OBV), Volume Price Confirmation Indicator (VPCI), Chaikin money flow, Klinger Volume Oscillator, and so on.

Is There Any Merit to the Momentum Theories?
What is the On-Balance Volume Indicator?

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