Of all the common metrics that investors like to look at in an ASX share, trading volume is perhaps one of the most intriguing. An ASX share can have high trading volume when it is being bid up, or heavily sold off. It can have high volumes when its share price makes a dramatic move, or if it stays flat.
All in all, it can tell us a whole lot, or not much, or anything you want it to really. That’s why, here at the Fool, we like to take a glance at the ASX shares being most actively traded on the S&P/ASX 200 Index (ASX: XJO) most days. We try to decipher the tea leaves about what it all really means.
What can ASX investors get out of trading volume?
But a recent article from Switzer Daily’s Michael Gable goes into a bit more depth about the potential uses of trading volume. It makes for some interesting reading. Here’s some of what he had to say on how to use trading volume to your potential advantage:
...you make money when stock prices are going up. This means that you want to be holding a stock when it is in an uptrend…
In an uptrend, I also like to observe the timing of the moves and the volume to get a feel for how strong the trend is. When it comes to the timing of moves, I like to see that the time taken to cover a certain amount of ground in a rally is less than the time taken for a stock to retrace the same amount during a pullback.
For example, if a stock tends to move up about $1 in a few days, but then it takes it a few weeks to fall only 50c, then logically it is telling us that the bulls are in control and the selling pressure is weak. The rallies will often be done on high volume and the declines will be done on lower volume. This difference in volume is also an indication that there is strong buying pressure.
So this advice might not be, or apply, for everyone. But it certainly shows how an expert investor like Gable looks at the trading volume metrics and uses them to obtain an edge. So next time you see a trading volume metric for an ASX share you may be interested in, it may hold some additional meaning.
The post What might trading volume tell us about the potential of an ASX share? appeared first on The Motley Fool Australia.
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More reading
- ASX 200 (ASX:XJO) midday update: CSL acquisition talks, Charter Hall guidance upgrade
- 5 things to watch on the ASX 200 on Monday
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- These were the best performing ASX 200 shares last week
- These were the worst performing ASX 200 shares last week
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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