When individuals participate in the stock market, they frequently concentrate solely on stock prices. Nevertheless, price by itself does not provide the complete picture. To determine if a price move is robust, weak, authentic, or fleeting, investors should also analyze volume.
Volume is among the key indicators utilized by both traders and long-term investors. It helps gauge market engagement, buying interest, selling pressure, and liquidity. Whether you are a newcomer making your initial investments in the stock market or a seasoned investor overseeing a portfolio, understanding volume can enhance your decision-making.
In this guide, we will explain what is volume in share market, how it works, why it matters, and how you can use it effectively before buying stocks.
What is Volume in Share Market?
Volume in the share market refers to the total number of stocks/equities bought and sold during a specific time period. This could be one trading day, one hour, or even a few minutes.
For example, if 5 lakh shares of a company are traded in a day, the stock’s daily volume is 5 lakh. In simple terms, if you are asking what is volume in share market, it is the measure of how actively a stock is being traded.
Why Volume is Important?
Volume helps investors understand:
- How popular a stock is at the moment
- Whether a price move is strong or weak
- How easily stocks/equities can be bought or sold
- Whether institutions may be entering or exiting
How Volume Works in the Stock Market?
All trades involve both the buyer and the seller. After completing their trade, the number of shares will be included in the total volume for that stock.
For example, one investor buys 200 shares and another investor sells 200 shares. This completed transaction adds 200 shares to daily volume.
Volume usually increases during:
- Market opening hours
- Quarterly result announcements
- Budget or policy events
- Major company news
- Sharp market rallies or corrections
Large-cap stocks usually see higher trading volume because more people trade them regularly, while small-cap stocks may see lower volume.
Why Volume Matters for Every Investor?
Volume is useful because it gives insights beyond price movement.
1. Confirms Price Trends: If a stock rises with strong volume, the trend is usually considered healthier.
2. Shows Market Interest: High volume often means investors are paying attention to the stock.
3. Improves Liquidity: High-volume stocks are easier to buy and sell quickly.
4. Reduces Trading Risk: Low-volume stocks may have wide bid-ask spreads and sudden price swings.
5. Helps Smarter Share Market Investment Decisions: Studying volume can improve timing, confidence, and risk management in share market investment strategies.
Volume and Price Relationship
Price and volume should always be studied together.
1. Rising Price + High Volume: Usually signals strong buying interest and possible continuation.
2. Rising Price + Low Volume: The rally may be weak and less reliable.
3. Falling Price + High Volume: Often indicates heavy selling pressure or panic.
4. Falling Price + Low Volume: May suggest limited selling and possible stabilization.
5. Sideways Price + Rising Volume: Could signal accumulation before a breakout.
High Volume vs Low Volume Stocks
Understanding the difference between high-volume and low-volume stocks is important for making better investment decisions. Trading volume reflects how actively a stock is being purchased and sold in the stock market. It can also indicate liquidity, investor interest, and price stability.
What Are High Volume Stocks?
High-volume stocks are shares that are traded frequently in large quantities during a trading session. These are usually well-known companies with strong investor participation.
Benefits of High Volume Stocks
- Easier to buy and sell quickly
- Better liquidity with lower bid-ask spreads
- More stable price movement compared to thinly traded stocks
- Lower risk of price manipulation
- Suitable for beginners and active traders
Large-cap companies often fall into this category because they attract institutional and retail investors regularly.
What Are Low Volume Stocks?
Low-volume stocks are shares that trade in smaller quantities and may have fewer buyers and sellers. These are often small-cap or lesser-known companies.
Risks of Low Volume Stocks
- Difficult to purchase or sell at desired prices
- Higher price volatility
- Wider bid-ask spreads
- Greater risk of sudden, sharp movements
- Technical indicators may be less reliable
How Traders Use Volume Indicators?
Volume indicators help traders confirm momentum and identify setups.
1. Volume Bars: The bars displayed below price charts showcase daily or hourly traded shares.
2. Volume Moving Average: Compares current volume with average volume over the past 10, 20, or 50 sessions.
3. On-Balance Volume (OBV): Tracks whether money flow is entering or leaving a stock.
4. Breakout Volume: When the price crosses resistance with high volume, traders often see it as a stronger breakout.
5. VWAP (Volume Weighted Average Price): Popular for intraday traders to judge average traded price levels.
Most modern share market apps provide these tools, along with charts and alerts.
How Investors Can Use Volume Before Buying Stocks?
Volume can help investors filter stronger opportunities. Here’s how you can use them:
- Check Liquidity: Avoid stocks with extremely low daily volume.
- Compare Current Volume vs Average Volume: If today’s volume is much higher than the 20-day average, it may signal unusual activity.
- Confirm Breakouts: A breakout supported by volume is often stronger than one without participation.
- Study Delivery Volume: In Indian markets, delivery volume shows shares actually transferred to Demat accounts, unlike total traded volume, which includes intraday trades.
A high delivery percentage (around 40% to 50% or higher) may suggest genuine accumulation rather than short-term speculation.
- Watch Institutional Interest: Sudden high-volume moves may indicate mutual funds, FIIs, or DIIs entering a stock.
- Combine with Fundamentals: Use volume with revenue growth, debt levels, valuations, and earnings quality for better investment in share market decisions.
Common Mistakes to Avoid While Using Volume
1. Depending Only on Volume: Volume should be combined with price action and company fundamentals.
2. Ignoring Delivery Data: Total volume alone may hide speculative intraday activity.
3. Chasing One-Day Spikes: Some spikes fade quickly after news events.
4. Buying Illiquid Stocks: Low volume can make exits difficult during volatility.
5. Ignoring Broader Market Trends: Even strong-volume stocks can fall in weak markets.
Ways to Track Volume Easily
Tracking volume has become simple for retail investors. Here’s how you can track volume:
1. Share Market Apps: A reliable share market app can help track:
- Real-time volume
- Volume gainers
- Delivery percentage
- Interactive charts
- Average volume comparison
- Breakout alerts
2. Exchange Websites: NSE and BSE websites publish official market volume data.
3. Brokerage Platforms: Most brokers provide chart tools and screeners.
4. Financial Websites: Useful for scanning unusual volume and top traded stocks.
Volume Strategy for Beginners
If you are new to the stock market, use this simple checklist:
- Prefer stocks with healthy daily volume
- Compare current volume with the 20-day average
- Check if the price rise is backed by volume
- Avoid random spikes without reason
- Use the delivery percentage for Indian stocks
- Combine technicals with fundamentals
