Traders look at Exchange trading volumes to gain valuable insight into the activity, health, and potential direction of a particular stock. When prices are rising and trading volumes increase it suggests that traders are actively buying the asset. However, when a price decline is accompanied by a large increase in trading volumes it could mean that traders are selling the stock pushing the price lower.

Volume is a count of all the shares that have changed hands in a trading transaction. For example, if trader 1 buys 500 shares of stock ABC and sells 250 shares of stock XYZ to another trader then the total trading volume for that day is 500 (ABC + XYZ).

Crypto Exchange Trading Volumes: What They Tell You

Some traders like to use metrics such as RVOL, which stands for relative volume on the chart, or OBV, an On Balance Volume indicator, which adds volume on up days and subtracts volume on down days to indicate whether buying or selling pressure is driving the price trend. Others use the Money Flow Index, which runs from 0-100 and uses trading volume as one component in its analysis to determine overbought and oversold conditions.

Increased trading volume is often a sign of possible future volatility and can be a useful entry signal. On the other hand, a sudden decrease in volume may be indicative of a short-term price correction. When interpreting these signals, it is important to consider the entire context of the market and the company in question.