‘Volume’ in stock market is the total number of shares that were bought and sold in a particular period of time (usually, one day).
For example, the below picture shows the Volume of Bajaj Finance as 28,66,735 on NSE. That means, the total numbers of shares that were traded (bought or sold) on 6th January 2020 was 28.66 lakhs on NSE.
The volume of Bajaj Finance on BSE was 16,04,479 – which means, 16.04 lakh shares changed hands on BSE. The total number of shares traded on both NSE and BSE was 44,71,214 on 6th January 2020.
Another Example: If ‘Mr A’ buys 100 shares of Bajaj Finance and ‘Mr B’ sells 500 shares of Bajaj Finance – the volume of Bajaj Finance would increase by 600.
Note: The basic definition of ‘Volume’ has been clearly explained above. Beginners who are just learning the basics of stock market, can stop reading the article here. The information below can confuse beginners, as it goes into more detail about volume.
Significance of Volume in Stock Market
High Volume: Large cap companies generally have much higher volume as compared to small / mid caps companies. Higher volume means higher liquidity. In other words, if you want to sell a stock you will always find a buyer in companies that have high volume.
Low Volume: Some Small / Micro cap companies have very low volume. Very few shares are traded everyday. In such stocks, both buying and selling of shares can be difficult. A big buyer in a low volume stock, can increase the price significantly. That is the reason you see small companies gaining 10-20% in a single day. The opposite can happen too. If there is big quantity selling in a low volume stock, prices can crash 10-20%. Such big rise or fall is not common in big companies with high volume.
Change in Average Volume: When stock price rises with significant increase in volume, this can be a sign that big investors are seeing future potential in the company. When stock price crashes with high volume, big investors could be selling the stock. This could also mean the stock is on a downward trend and prices could fall further.
Volume is a key part of technical analysis, although future and options has reduced the significance of volume quite considerably.
How to view volume of shares in Zerodha?
The image above is from Zerodha. It shows the chart of HDFC Bank from September 1st 2019 to January 6 2020. The bottom part of the chart (marked in a box) is the Volume. Each green or red bar is the volume for that particular day.
The colour of the volume bar is green because the stock went up that day. The colour is red if the stock went down on that particular day.
To show Volume in Zerodha. Select any stock and click on ‘Chart’ icon. Once the chart shows, select ‘Display’ and search for ‘Volume Chart’. Once you click ‘Volume Chart’, the volume should show like the above image.
Note: The above image is from the desktop computer version of Zerodha. The chart will look different on the ‘Kite’ Mobile application.