Wednesday, November 04, 2009

Trading Volume Stocks: What One Day Can Bring

Financial experts love to use jargon that confuse and infuriate the newbie. Education is key- before making any trade transaction you should know a little about the market, how it works and the definitions that are associated with it. Taking the time to arm yourself with just a little bit of education can save you some heartache and embarrassment later on. It does not matter whether you trade online or with a traditional broker, you do need to know a few things before you begin.

For instance: the basic definition of the word "volume" when related to stocks is simple. It is the number of stock shares that are traded usually over the course of one trading day. If there are fewer trades than usual for that time period, then they say that the volume is "thin". Likewise, more trading is "heavy". The amount of trading will influence market prices either up or down as stocks change hands. The more trading (heavy trading) that goes on, the higher the price for that stock will rise and vice versa.

Researching the volume of a particular stock before making a transaction is a wise idea and can be done in a number of ways from the traditional to the more modern. In the old days, this information was only available through a broker, but times have changed and many people now handle their own stock portfolios with no financial consultant involvement at all. The do-it-yourself investment wizard can find out a stock's previous day volume by looking in the newspaper or online. Online is probably the better choice if you are dealing with a stock that seems to be having wide variables- information is updated frequently, in some cases as often as every half hour or less.

Knowing volume of your particular stock can be important for several reasons. First, it can give some indication how many buyers and sellers are involved with it. The higher the volume, the more movement has been reported. A sudden jump or decline in volume, especially in one that has been typically steady may indicate an event, either positive or negative that may affect the entire market. Of course, not every little spike or valley on the volume chart of a stock will indicate a major change and sometimes there is little or no reason at all for the change. Do not make any major decisions to buy or sell stocks based on one day's volume information, however. You need to track the stock's average daily volume for several days before finalizing a decision.