Option Investor

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Trading volume, or the number of shares traded is an important indicator in interpreting market direction and stock price. The change in stock price is the result of supply and demand; those who want to buy versus those who want to sell. The key point is that a rise or fall in price on a small volume of shares traded is far less important than a move supported by heavy volume. If there is heavy trading on an upward move, buyers control the market, and their enthusiasm for the stock often pushes it even higher. Most technicians agree that volume usually precedes the direction of a stock's price and when reviewing candidates, we favor issues with bullish trends that have heavy volume support.