Trading Volume
Trading volume is the number of assets that were bought or sold at a certain point in time. Trading volume on the stock exchange and futures market can be defined as the total number of shares or lots that changed hands during the trading period.
A large trading volume is a marker of the high interest of market participants in a particular financial instrument. The higher the turnover, the higher the liquidity of an exchange asset. A strong or sharp increase in trading volume often indicates that the strategy of large institutional speculators or their interests has changed. An excessively rapid increase in trading volume can trigger a jump in asset prices, so that a large player can buy or sell large positions.
How to Understand That a Major Player Has Appeared on the Market
You need to pay attention to the following signs in the trading volume:
- A rapid and sharp increase in trading volume at some point, which may be a sign that some major player wants to enter or exit a position.
- Abnormal trading volume. If, as a rule, an asset was traded with low trading volume, but suddenly the volumes increased, then this may be a sign that a major player showed interest in it. Apparently, they are interested in this asset, and they can influence its price. Let’s look at this point in detail.
It all starts with interest. A trader or investor sees that some stock or other asset has potential, and decides to make a big purchase or sale.
- Next, the price movement comes. Due to the huge volume of the transaction, the asset price begins to change dramatically. This attracts the attention of a large number of traders and investors. For example, a trader purchased a large number of shares of company A, the price soared due to the dominance of demand. As a result, the stock price starts to rise very quickly.
- Rumors or a wave of news. News about a company or an asset that becomes public after unusual trading volumes may explain the sharp jump in prices. This greatly attracts additional traders and investors, increasing trading volume. For example, news agencies, having learned that there is a large purchase of shares of company A, begin to publish a large number of articles about the trader’s confidence that the company’s future profits will grow, and this naturally attracts many investors.
- Panic among sellers or buyers. An increase in interest will provoke panic among other traders or investors who choose whether to enter or exit a position in order to gain or limit their losses. For example, on the news of the growth of company A shares, traders want to earn more by making even more purchases of company shares.
- The stage of market acceptance. After the decline in huge trading volume and interest, the market stops storming, and it returns to more stable trading volumes. For example, the price of shares of company A will steadily decrease after a surge in interest. Of course, this can also happen due to the sales of other traders who want to enter the market with a profit, or due to purchases by other investors who consider the stock price to be inflated. Here it is important to analyze what is happening in the market.
It’s the same old story:
- Big players buy at the bottom.
- The price creeps up.
- Other players see it.
- Their greed awakens.
- Other players come in, come in, and come in.
- Big players are already taking their profits at the top.
- The price starts to fall back.
- A natural panic begins with trading volume.
- Everyone is actively selling.
- The price continues to slide down, and then it’s a completely different story.
Overall, don’t underestimate spikes in trading volume at key levels. If you see that trading volume is strongly growing at the support or resistance level, then this may indicate that a major player has intervened. Large players may seek to control prices at these levels or decide to enter a position.