Dominant Volume Trading Strategy Wins YOU 77% Of Trades

To calculate it, you take the total volume of trades over a particular time period and divide that number by the number of days. The descriptive statistics suggest that, on average, most of the indices studied have a positive return with a low daily volatility reaching a maximum of about 1%. The trading volume is much higher in markets such as Nigeria and Egypt compared to markets such as Zambia and WAEMU. The Market index return skewness coefficients are not far from those of a normal distribution. However, they are predominantly negative, implying that the returns distribution has a thick tail. This means that the probability of obtaining negative returns is higher.

In a centralized market with no frictions, lenders of positive-supply assets would compete their rent down to zero. Indeed, equilibrium requires that some agents hold the assets, and hence would be willing to lend them as long as they earn any non-zero rent. With search frictions, however, lenders can earn a rent because they can extract some of the borrowers’ surplus when bargaining in bilateral meetings.

For both buyers and sellers, sometimes the only opportunity to trade a position will be a news event that creates more liquidity for a short period of time. The volume of trade is a very significant technical indicator for traders. Traders use this to understand the level of liquidity attached to a particular asset. It also points out how easy it will be for a trader to enter and come out of stock or contract based on the level of activeness of the asset.

Trade (% of GDP)

When the price breaks below a support level, the breakdown is generally believed to be more significant if volume is high or above average. A breakout accompanied by low volume suggests enthusiasm is lacking. An uptrend without increasing and/or above average volume suggests investor enthusiasm is limited. While the price could continue to rise, many traders who use volume analysis will nevertheless look for other candidates. An uptrend paired with increasing and/or above average volume implies investor enthusiasm for that stock or asset is strong, which could lead to more buying and even higher prices.

So, when you see stocks with unexpected volume, you can make use of that information and place new trades or manage your existing trades. You will notice that irrespective of the price movement, the increasing volume tells us that the given price movement is getting a lot of support. While volume can be a useful indicator in all three markets, it is important to be aware of the differences in how volume is reported and to use it in conjunction with other forms of analysis. Simply hide your protective stop loss under the previous pullback’s low. Never use a mental stop loss when volume trading, and always commit an SL right the moment you open your trades. When the Chaikin indicator breaks back above zero, it signals an imminent rally as the smart money is trying to markup the price again.

Two centuries of trade, country by country

Volume indicator trading can really help a trader to reduce the noise in the markets and get better trade signals with their strategy. There is often a dramatic increase in volume at market tops or bottoms. It’s basically the market blowing out or exhausting, its remaining interest in price at that level. Therefore, volume can be a useful indicator to help detect market reversals, and significant changes in direction, up or down.

• When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with.
• If trading volume increases, prices generally move in the same direction.
• For example, for China, the figure in the chart corresponds to the “Value of merchandise imports in the US from China” minus “Value of merchandise exports from China to the US”.
• It shows current trends, buyer and seller sentiment, and which company shares are more liquid than others.
• Determining the trend direction is important for maximizing the potential success of a trade.
• But it is necessary to add this perspective to the simplistic story of “trade with China is bad for US workers”.

During uptrends and in sideways markets, a stock’s price will occasionally run into a resistance level—a point where upward trends start to fizzle as selling pressure overcomes buying pressure. When a stock’s price breaks through that level, the breakout is generally believed to be more significant if volume is high or above average. A breakout accompanied by low volume suggests enthusiasm for the move may be lacking. Volume can also be used to determine when the market has gotten exhausted with the direction of a particular stock. When there’s a sharp change in the price and a sharp increase in volume, it suggests the trend could be ending. Investors who are afraid of missing out tend to buy high, resulting in a sharp increase in volume.

This technical indicator may be more helpful for decision-making with day trading strategies, versus evaluating stocks or mutual funds to invest in for the long-term. If you’re using this metric to compare stocks, remember to consider the bigger picture in terms of historical performance and other factors that could be impacting the markets. Several major drivers of the increase in trading volume statistics in markets, especially in the US, include high-frequency traders and index funds. Such passive investors utilize high-frequency algorithmic trading, which is a huge contributor to overall trading volumes in stock markets. As presented above, investors will have an easier time selling a stock when the price is rising with high volumes. When a stock is not traded very often, and there is limited buying interest, an investor may have a difficult time unloading their shares.

Can Indicate If the Market is Exhausted with a Stock

Trading with a tight stop loss can give you the opportunity to not just have a better risk-to-reward ratio, but also to trade a bigger lot size. Now that we have observed real institutional money coming into the market, we wait for them to step back in and drive the market back up. We’re going to let the Chaikin Money Flow indicator slowly drop below the zero line. We don’t want to see the volume dropping fast because this will invalidate the accumulation noted previously. When you see this type of action, it’s a warning sign of a potential trend reversal. D) Therefore, irrespective of how many transactions have been completed to make the price move, the net effect will be measured.

Consequently, for example, their preference for excitement may result in the over-betting of longshots. Bilateral trade flows can be sorted by goods or services, monthly or annually, with choice of classification . Data is likely to be very time consuming to collate as there is no bulk data download unless a user has a premium https://xcritical.com/ site license. Asymmetries in international trade statistics are large and they arise for a variety of reasons. These include conceptual inconsistencies across measurement standards, as well as inconsistencies in the way countries apply agreed protocols. Here’s a checklist of issues to keep in mind when comparing sources.

Accumulation and Distribution Indicator

Beneath the surface of a move higher or lower, trends may be forming—or fizzling into a reversal. That’s why traders look for other indications of enthusiasm when they want to confirm or refute a price signal. Trading volume, which measures the number of shares traded during a particular time period, can help. Volume is the number of shares of a stock that have changed hands over a certain period of time, typically one day. Stocks with higher volumes have more investors interested in buying or selling them. Daily volume is the most common time frame used when discussing stock volume.

Statman M, Thorley S, Vorkink K. Investor overconfidence and trading volume. Assogbavi T, Schell J, Fagnissè S. Equity price-volume relationship on the Russian Stock Exchange. 4 are nonzero, there is a bidirectional relationship between return and volume. For the Vector Autoregressive estimates, we used a lag of 3 based on the Akaike Information Criteria .

Sell volume happens at the bid price, which is the highest advertised price buyers will offer. Buy volume happens at the offer price, which is the lowest advertised price sellers will accept. A higher trade volume is representative of better order execution and higher liquidity.

Relationship between trading volume and market index returns

The relationship between trading volume and return is examined using the Granger causality test. For the relationship between trading volume and returns volatility, we use an asymmetric EGARCH model. The results indicate that returns do not cause volume while volume causes return in some countries’ Stock Exchanges. Regarding the volatility of the daily return, the study shows on the one hand that the persistence in the volatility is low and the trading volume increases this persistence on the majority of Stock Exchanges. On the other hand, lag trading volume affects the daily volatility of the markets.

Volume refers to the total number of contracts or shares traded in a particular security or market over a specific period. Generally, increased trading volume will lean heavily towards buy orders. These positive volume trends will prompt traders to open a new position. The main advantage of the Chaikin Money Flow indicator is that the indicator can assess the buying pressure vs the selling pressure of your favorite currency pair (stock, ETF, cryptocurrency, futures market, etc.).

Trade and Globalization

As we can see, until 1800 there was a long period characterized by persistently low international trade – globally the index never exceeded 10% before 1800. This then changed over the course of the 19th century, when technological advances triggered a period of marked growth in world trade – the so-called ‘first wave of globalization’. In today’s how to increase your brokerage trading volume global economic system, countries exchange not only final products, but also intermediate inputs. This creates an intricate network of economic interactions that cover the whole world. Up to 1870, the sum of worldwide exports accounted for less than 10% of global output. Today, the value of exported goods around the world is close to 25%.

How Does Volume Affect Stocks?

While you can still make money even in tight-range markets, most trading strategies need that extra volume and volatility to work. Brokerage services for alternative assets available on Public are offered by Dalmore Group, LLC (“Dalmore”), member of FINRA & SIPC. “Alternative assets,” as the term is used at Public, are equity securities that have been issued pursuant to Regulation A of the Securities Act of (“Regulation A”). These investments are speculative, involve substantial risks , and are not FDIC or SIPC insured.

Najand M, Yung K. A GARCH examination of the relationship between volume and price variability in futures markets. Examination of Granger causality relationship indicates the absence of a feedback effect identified in several empirical works. Indeed, return does not cause volume in all the countries sampled, while trading volume is found to be a crucial informational element in predicting return in Egypt and Nigeria (Table ​ . In the stock market, there are always equal number of buyers and sellers. Looking at the unexpected trading volume for the stocks can identify such a trend.

The author explains this negative relationship by investors’ misspecification of future earnings or illiquidity of low volume stocks. Caginalp and Desantis emphasize in their investigations that if the stock price increases, but the trading volume decreases, then the growth of the stock price is considered by technical analysts as unstable. Since the development of the Efficient Market Hypothesis by Fama , many empirical investigations tested its validity on several financial markets globally. The relationship between trading volume, return and volatility is part of this framework.