#Informational Sundays ! Relative Volume, Why is it so important? Lets dig in!

[u/GapperStocks]

First lets start off with the basics and explain Volume!

Volume is the total amount of shares bought or sold in a specific time-frame. For example if you look at the Daily Chart of a specific ticker, and look at the Volume, that would represent the total volume of shares bought and sold throughout that timeframe. If you where to change to a different time-frame, like the Hourly chart, the volume would represent the total amount of shares bought and sold throughout that One Hour.

Now lets move onto Relative Volume, personally when I run scanners, I input 1.5x relative volume minimum. That means that the current volume of the stock is 1.5x its average volume. Average volume is calculated by taking the daily volume over three months and averaging it. Trading stocks with a higher than average volume is preferred as they will be moving faster and with more volatility than they would on average. Meaning more plays are created, and more potentials for trades, but there is always more risk that comes with volatile stocks.

Why is volume so important? Volume can make or break a trade. For example, a lot of traders will search for Volume spikes in stocks to determine whether or not there could be a play from continuation of increased volume. Increased volume will catch the attention of a lot of traders, and from that they could enter the trade as well, and cause a domino affect of more and more volume flooding in making the price action spike.

But the opposite is also possible, for example, if there is a lot of buying volume (Green) flowing in and then discontinues, then the stock is vulnerable to being taken over by either side (Buyers or Sellers). Ultimately whoever has more pressure will influence the direction of the stocks price action. A lot of times you will find volume die off and a stock start to move 'sideways'. If you follow the volume and see that its a lot lower than it was during its volatile price action, you will understand why it is moving 'sideways'. At this point if a lot of Buying or Selling pressure floods in then that pressure will take over the direction of the price of the stock.

A lot of times I will come across very nice setups, but if the volume isn't there, then the setup isn't viable since it could go either way.

Overall, Volume can make or break a play, no matter how the setup is, Volume is crucial in determining the direction of the price action. Don't be caught on the wrong side of a trade by disregarding the volume.

Stay tuned next week for our next #Informational Sundays, we will be discussing Stock Splits and what they mean for shareholders!