Volume is a measure of trading activity. On stock exchanges, volume is the number of shares trading hands over a given period of time. Not all exchanges count volume in the same manner; on the NYSE, a transaction of 100 shares adds 100 to the volume tally, but on the Nasdaq, the same transaction increases the volume by 200. The Nasdaq method is referred to as double-counting because the buy and sell are viewed as distinct transactions. As a general rule, markets that are completely electronic double-count, whereas physical markets do not.
Market timers often use volume as an indicator of future price change. For instance, some traders believe that a surge in trading volume on a stock is a precursor to a rapid change in price. The theory is that important news does not reach everyone at the same time, so an unexpected increase in volume suggests important news has been leaked. |
