Volume and Charting
Volume is key to liquidity in trading. Liquidity is simply the ease that a stock can be bought or sold without severely affecting price. If liquidity is low, it will cost the trader more to buy and sell and possibly make it difficult to exit a trade. TradeWithPros stays away from low volume stocks. We look for stocks that trade at least 500,000 shares a day, preferably 1 million.
Volume represents a level of interest in a stock. If a stock is trading 50,000 shares a day there is very little trading interest and liquidity will be weak. If a stock has high volume, there are many traders interested in the company and liquidity will be strong, making entries and exits easy.
Many traders make the mistake of assuming that if a stock is rising on higher volume, buyer interest is growing and if it is dropping on higher volume, seller interest is growing.
The stock market is a supply and demand game, for every seller there is a buyer. On high volume up days, there are equal numbers of buyers and sellers. On low volume down days there are equal numbers of buyers and sellers. Temper your use of volume with this knowledge.