Volume, or trading volume, is one of the key indicators every trader should watch. It shows the number of shares traded during a specific time period (day, hour, minute). Volume helps us understand the strength and reliability of a price movement.
Why Is Volume Important?
- Trend Confirmation
High volume during a price increase signals strong buyer interest, confirming an upward trend. Conversely, high volume during a price decline indicates strong selling pressure and confirms a downward trend. Low volume often means weak interest and may suggest false breakouts or uncertain market conditions. - Trend Reversal Identification
A sudden spike in volume at support or resistance levels can signal a trend reversal. For example, if the price breaks through resistance with high volume, there’s a better chance the breakout will hold. - Liquidity and Speed of Entry/Exit
Higher volume means better liquidity, making it easier to enter and exit positions without large price slippage. This is especially important for swing traders who want to react quickly to market changes.
What Volume Is Needed for Swing Trading?
- Sufficiently High Volume: For swing trading, it’s ideal when a stock’s volume is above its 30-day average. This ensures the trade will be liquid enough, and price movements will be real and supported by market participants.
- Low Volume Can Be Risky: Stocks with low volume can have price movements prone to manipulation or unpredictability.
Why Include Volume in Your Analysis?
- Signal Verification: Volume helps confirm whether a price movement is genuine or false.
- Optimize Entry and Exit: Monitor volume to find the best moments to buy or sell.
- Better Risk Management: Avoiding low-liquidity stocks with erratic moves helps protect your capital.
Summary
Volume is a key tool that complements stock technical analysis. For swing trading, tracking trading volume is essential because it helps you better understand trend strength, avoid false signals, and trade liquid stocks with lower risk.
