The volume that you see in regards to a particular stock is the volume of stocks traded in that day.  So for example, if Google has had 3.5 million stocks traded within the day then the volume of Google is said to be 3.5 million.

Volume is one of the most popular indicators used by traders.  Volume can indicate a change in market direction, and can show you whether or not the rise or fall in price was serious buying or selling or not.

Volume can subtly show when a stock price is about to reverse its trend.  In an upward trend volume is usually higher on days when the price moves up but relatively low when the stock price drops.  When the stock is getting to the end of its upward trend and beginning to reverse into a downward trend, the high volumes on up days can start to even out a bit and the volume on the down days begins to edge up a little.

When the new trend has established itself, the down days will tend to have higher volume than the up days and you should be able to see where the start of the new trend occurred.  This is the theory anyway.

Volume is one of the best indicators for showing strength in a stock’s price.  This can be seen when the price goes up with higher than average volume.  This could be due to good news and could indicate further rises in the stock price.

It can also show if there is no sentiment in the rise.  For example, if there is a large increase in the stock price but low volume, this could be indicative of the market maker trying to entice buyers to that particular stock or that the trend is about to reverse.  Because there is no sentiment for that stock the number of stocks traded will be lower than average.  This shows a weakness in a stock’s price.

The opposite of course works for falling markets too.  If the price is dropping on heavy volume there is some serious selling going on and could indicate the stock price will drop further.  If the stock price is dropping but the volume is low, it shows there is no sentiment in the downward movement and could indicate profit taking.

Volume information for a stock can usually be obtained from most sites that give stock prices.  Some sites even give you the actual volume history for a stock and you can easily see where there has been a spike and a price rise or a dip and a price drop. 

For example, British Telecom (BT.A) has had an average daily volume of just over 38.5 million over the last month and today it jumped to almost 83.5 million.  This shows you that the direction it went today is a move in sentiment of the market.  The price actually went up by 7.6p (16th June 09).

Another way to view volume data is on a chart.  Most websites provide interactive charting where you can select to view the volume data as a bar chart underneath the main price movement chart.  This gives you a visual indication of the market’s sentiment.

So as you can see, volume is a very important indicator and should be used along side other factors learned in a good stock market course when deciding whether or not to buy or short a company’s stock.