What is Trading Volume? | Definition and Example


Trading volume is the total number of trades executed within a given timeframe for a particular security across the entire market. In simple terms, it represents the volume of buying and selling activity for that asset. For example, if a company’s shares are traded 70 times in one day, the trading volume for that day is 70.

Trading Volume in a nutshell

  • Trading volume reflects the level of buying and selling activity for a security.
  • It serves as a crucial technical indicator indicating market activity and liquidity.
  • High trading volume signifies increased market activity, while low volume suggests lower participation.

What does the Trading Volume indicate?

Trading volume serves as an important technical indicator that indicates the level of activity and liquidity in the market. This indicator includes all shares exchanged between buyers and sellers during this period.

Traders see the volume of trading as an important technical indicator to evaluate a certain asset’s liquidity. Traders can easily enter and exit a stock or contract based on the asset’s degree of activity. Moreover, it aids traders in figuring out how many people are interested in buying and selling a certain stock and at what prices they may do so. As a result, traders have found it to be a successful tactic.

Securities with a high trading volume indicate increased market activity and higher turnover, while securities with a low trading volume indicate lower market participation and lower turnover.

Each market exchange keeps track of the amount of trade and makes this information available. During a single trading day, the volume of trades may be published as often as once per hour. Trade volumes given on an hourly basis are based on estimations. In the same way, the volume of trade at the end of a trading day is an estimation. The real numbers aren’t released until the next day at the earliest.

What are the advantages of the Trading Volume?

The advantages of trading volume include indicating market activity and the liquidity status of the underlying asset. It helps traders identify potential reversals or breakout opportunities. These are all pros of the trading volume:

  • It reveals the asset’s liquidity status.
  • Traders use it as one of the most important technical indicators.
  • For traders, it lets them know when to enter or quit an investment.
  • Intra-day trading requires careful consideration of this factor.
  • It’s a good way to see how security is progressing and spot a pattern.

Example: How can you use the volume in trading?

To understand, how to use the volume in trading, let’s take a look at an example. In a simplified market scenario with two traders, let’s call them X and Y, the trading activities can be represented as follows:

Trader X purchases 100 shares of share C and sells 50 shares of share B. Trader Y then enters the market, buys 200 shares and then sells 100 shares of share G to trader X.

In this scenario, the total trading volume on the market would be 300 shares. This includes the 100 shares traded by X, the initial 50 shares of stock B and the subsequent 200 shares involved in trading between X and Y.

How to use Trading Volume with Binary Options?

In binary options, trading volume is the number of binary option contracts traded within a specific time frame. Analyzing volume trends in the stock exchange can help to identify potential reversals, breakouts, and the overall strength of a trend.

See also our binary volume trading guide.

Pick a Suitable Broker

For successful volume-based binary options trading, it is essential to choose the right broker. Look for platforms that offer real-time data and major technical indicators for volume analysis. Make sure the broker is regulated and has positive reviews from traders. Pick trusted brokers such as Pocket Option, IQ Option or Quotex for a reliable service.

Broker:
Review:
Advantages:
The offer:
1. Pocket Option
Yield: 97%+
12345
5/5
  • Welcomes International Clients
  • Offers High Payouts: 90% – 97%+
  • Professional-grade Platform
  • Swift Deposit Process
  • Enables Social Trading
  • Provides Free Bonus Incentives

$ 5

   Visit broker

(Risk warning: Trading is risky)

2. IQ Option
Yield: Up to 100%
12345
5/5
  • $10 Minimum Deposit
  • Free Demo Account
  • High Return Up To 100% (in case of a correct prediction)
  • The Platform Is Easy To Use
  • 24/7 Support

$10

   Visit broker

(Risk warning: Trading is risky)

3. Quotex
Yield: 95%+
12345
5/5
  • Min. deposit $10
  • $10,000 Demo
  • Fast Execution
  • High Profit up to 95%
  • Fast Withdrawals
  • Free Signals

$10

   Visit broker

(Risk warning: Trading is risky)

Broker:
5/5
12345
Yield: 97%+
Advantages:
  • Welcomes International Clients
  • Offers High Payouts: 90% – 97%+
  • Professional-grade Platform
  • Swift Deposit Process
  • Enables Social Trading
  • Provides Free Bonus Incentives
The offer:

$ 5

Visit broker

(Risk warning: Trading is risky)

Broker:
5/5
12345
Yield: Up to 100%
Advantages:
  • $10 Minimum Deposit
  • Free Demo Account
  • High Return Up To 100% (in case of a correct prediction)
  • The Platform Is Easy To Use
  • 24/7 Support
The offer:

$10

Visit broker

(Risk warning: Trading is risky)

Broker:
5/5
12345
Yield: 95%+
Advantages:
  • Min. deposit $10
  • $10,000 Demo
  • Fast Execution
  • High Profit up to 95%
  • Fast Withdrawals
  • Free Signals
The offer:

$10

Visit broker

(Risk warning: Trading is risky)

Measuring Trading Volume and use Technical Indicators

There are two primary methods to measure trading volume: direct observation and through technical indicators. Direct observation shows the volume data directly in a chart, with longer bars indicating a high trading volume and shorter bars indicating a low trading volume. Green bars represent buying activity and increasing prices, while red bars show selling activity and decreasing prices.

For instance, on the IQ Option platform, you have a selection of volume indicators to choose from, including Accumulation/Distribution, Net Volume, Volume Oscillator, and Weis Wave Volume.

IQ Option Trading Volume Indicators explained

  • Accumulation/Distribution: Tracks money flow into and out of an asset. Rising values indicate buying, falling values indicate selling.
  • Net Volume: Shows market sentiment by subtracting downtick from uptick volume. Below 0 is bearish, above 0 is bullish.
  • Volume Oscillator: Measures volume change. Rising values show accelerating volume growth, falling values show declining volume. Zero indicates stable volume.
  • Weis Wave Volume: Organizes volume into wave charts, revealing buying and selling waves. Offers insights into price-volume relationship.

What are the best trading strategies for different volume scenarios?

Trading on Low Volume

  1. News Trading Strategy: Stay up to date on economic, political and geopolitical events to capitalize on price movements driven by announcements. Use an economic calendar to find important events and select binary options based on market expectations.
  2. Tunnel Trading Strategy:Find narrow trend lines to predict price movements within a limited range. Trace parallel trend lines and execute binary options based on the expectation that prices will remain within the defined tunnel until expiry.
  3. Range-Bound Strategy: Profit from limited price movements by predicting that the value of an asset will remain within a certain range until expiry. Identify historical support and resistance levels and execute boundary options with short expiry times.

Trading on High Volume

  1. Moving Average Crossover Strategy: Use crossovers between short-term and long-term moving averages to spot trend reversals or confirm existing trends. Confirm signals with strong volume support and adjust the expiry times to the expected duration of the trend.
  2. High-Volume Breakout Strategy: Benefit from significant price movements after breaking through important support or resistance levels. Use technical indicators to identify key levels and execute binary options as soon as the breakout occurs with strong volume confirmation.
  3. Momentum Trading Strategy: Capitalize on sustained high volume market trends by identifying strong price momentum and executing binary options in the direction of the trend. Confirm momentum signals with strong volume support and adjust expiry times accordingly.

Why is Trading Volume important in trading?

The amount of trade that takes place is a critical factor in the trading process. Traders use it as a technical indicator to help them determine whether to enter or quit a transaction. The asset’s liquidity can also be determined by looking at this market data. This info is accessible on all stock market platforms.

Exclusive Trading Course
Get 70% Off

Learn Success Binary Trading With Our Binaryoptions.com Course

123455/5

Learn Success Binary Trading With Our Binaryoptions.com Course

  • Proven Strategy For Best Trade Setups
  • Find Trades Every Day
  • Available For Any Markets
  • No Indicators Needed
  • Get A High Hit-Rate Up To 60-80%
Get 70% Off

About the author

Marc Van Sittert
Marc Van Sittert is an experienced Binary Options Trader and coach who is originally from South Africa. He started his career in 2014 by trading old-school Binary Options online. His main focus is on short-term contracts with 60-second trades.

Write a comment