If the price moves up or down and volume is high, with lots of people trading it, that’s a bigger “sample” that suggests the movement strongly reflects the market’s sentiment about the stock. Volume can also help investors evaluate whether the movement of a stock’s movement is valid and likely to be lasting. If a stock’s volume suddenly rises and there isn’t an apparent reason, like an announcement from the company, it could suggest there has been a development affecting the company that some investors know about but not others. Volume can also clue investors in that something is happening at a company that they may not know about. The volume (in particular average volume) can also be an indication of how liquid a particular stock or market is, or how easily you can sell an investment for its market value.

Or, if the company announces bad news, like earnings that aren’t as high as expected, more shareholders may sell the stock, which can also increase volume. This announcement puts the company in the spotlight it could encourage investors to buy more of its stock, and volume increases. Suppose a company releases a new earnings statement, which shows a steep increase in revenue. Volume can be an indicator of market trends and developments. However, in the options market, if an option to buy 100 shares is sold, volume increases by just one transaction, not by 100. The volume increases by 100, not just one.

Suppose that in a single sale, one investor sells 100 shares to another investor.

In the stock market, volume looks at the number of shares traded, not the number of transactions. Volume can be calculated either for a particular stock or for an entire market. Volume represents the total number of stock shares or options contracts that change hands, usually during an individual day.

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