According to Balin Reinkensmeyer from falkininvesting.com, Volume is one the most basic concept that you must understand when trading stocks.
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Volume is defined as the number of shares or contracts traded in a security or an entire market during a given period of time (investopedia.com)
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An example that Balin gave in his article is:
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Think about it, Stock XYZ is trading at $10 per share, and you decide to buy 100 shares. Right upon purchasing those 100 shares, you’ve increased the total volume for that stock by 100. So, I go buy 500 shares, upon this then the total volume increases by 500. But what if someone sells? Still counts because they are shares exchanged, so if Tim decides to sell 5,000 shares at $10 per share, well the volume increases by 5,000 more. This tally is added throughout the day to give you the total daily volume.
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Now the benefit of knowing the volume of a stock is:
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By knowing the total volume on a day, you can understand the power of influence on a given stock. The greater the volume, the greater the influence for the price to change.
If you know how to read a volume of a stock, you can predict when it can break a resistance line and thus you can plan your investing strategy accordingly.
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For more information please visit Falkininvesting.com
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