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When you follow stock prices, you can use stock charts that track the daily ups and downs of each stock. These stock charts tell you not only how the price changes each day, but how many people bought and sold each day. The number of shares changing hands is called volume. The volume on up and down days can give you clues to where the price might go on a stock.
The volume indicator appears as a vertical bar at the bottom of a stock chart. If the stock goes up for the day, most stock charts show the volume as a green bar. The higher the bar, the more shares sold that day. Because the price went up, you refer to the green bar as “up volume.”
When a stock goes down in price, most stock charts show a red volume bar. The higher the bar, the more people who sold or bought the stock that day. Since the bar appears red, that means the price went down. You call this “down volume.”
Up vs. Down Volume
When you look at the volume bars, compare the height of the green bars to the height of the red bars. If green bars tend to be higher than red bars, you can say that the stock has more up volume than down volume. This indicates that the stock tends to have more buyers than sellers, which bodes well for the stock. If you notice that red bars tend to be higher than green bars, this indicates sellers tend to outnumber buyers. That could mean the stock is losing demand among investors and could go down.
Some charts will allow you to see up vs. down volume on a daily basis by providing separate green and red bars. For one day of trading, you can see a green bar for buyers and a red bar for sellers. A higher green bar means buyers outnumbered sellers, and a higher red bar means the sellers outnumbered buyers for the day.
Stock charts that show you average volume draw a trend line across the volume bars. This shows you what the volume usually is for the stock. If the price spikes up on any given day, and the up volume looks higher than the average volume, that indicates a lot of new buying interest. The stock could go up from there. When a stock price drops dramatically and the red volume bar looks higher than the average volume, this indicates that a lot more people than usual don’t want the stock. The stock could drop in price from there if sellers continue to get out of the stock.
- $ Symbol and bar chart image by rolffimages from Fotolia.com