Stock Market Volume

Stock market volume is the force which drives the market trend. Volume represents demand in an uptrend and supply in a downtrend in the stock market. Lack of volume means lack of interest.

Don’t tie up your money in dead low volume stocks. There are many issues on the KLSE and SES which trade only a few lots a day. At most these stocks will drift in narrow trading ranges. If you have a profit and want to take it, you may have to wait a few hours to get your price. The bid/ offer spread may be wide and as a seller you are likely to get the worst of it if you really want to get out.

This is the best case scenario. The worst case is the squeeze. In a stock market correction there may be no buyers at all. Your one dollar profit may now be a one dollar loss. Yes, I am sure some of these low volume stocks are good companies with excellent prospects but remember all you hold is a piece of paper and the real worth is what someone else will pay for it NOW.

Increasing volume by itself is not a valid reason for taking a position. You must combine volume analysis with price pattern analysis to get an edge in your market entry. What I like to see is increased volume on a rally and decreased volume on the reaction. This tells me that the reaction is profit taking by shorter term operators rather than a trend change. If prices should break out of a range on high volume, it means quality buying. You should wait to enter on a retest of support on the change swing.