Investors and financial analysts will often spend significant amounts of time attempting to identity how particular assets are traded. This will involve looking at data indicating how much of the asset was traded, at what price, by whom and under what circumstances. The broad name for this data is trade patterns, of which trade volume -- the amount of the asset traded over a particular time -- is a variety of data.
When all the data related to the trading of a particular asset are put together, patterns generally emerge. Some of these patterns may be obvious. For example, when the asset is priced lower more people may buy it. However, some of these patterns may be more complex. Identifying them may give investors clues as to how the asset can be traded for a profit.
The volume of trade for a particular asset is the amount of the asset that is being bought and sold over a particular period of time. Volume can be measure in a number of different ways. Stocks, for example, will usually be measured by the number of stocks sold on a particular trading day. However, volume can also be measured by the number of transactions conducted and other related metrics.
Trade volumes are key pieces of data that can be used to help establish trade patterns. Often, trade volumes will be used in conjunction with other data related to trading. For example, if a stock records a high trade volume and a rise in the price on a particular day, then this can suggest the market is bullish on the stock. Or, a pattern may emerge that volumes increase or decrease in correlation to other causes.
In some cases, trade volume can be a clue as to market sentiment towards a particular asset. For example, let's say that a particular stock is issued to the public and the original owners of the stock are not allowed to sell their stock until six months after the public offering. If after exactly six months, the volume of trading on the stock spikes up, it may indicate many of the original investors are selling off their stock, suggesting the company is facing a rough time.
- "Economics"; Roger A. Arnold; 2009
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