How come stock price increase doesn't result in a volume increase as well?

Question

If the stock goes up it means that more people are buying it right? So volume should be increasing along with stock price increase and vice versa, but that's not what is happening, why?

Answer 1

A stock price increase does not necessarily mean that more people are buying.

Whenever a stock is sold, there is a buyer and a seller. So everyday the number of shares bought and the number of shares sold are equal to each other. The volume represents the number of shares that have changed hands during the day.

The stock price represents the price at which the last stock that was traded sold at. This was the price that the last buyer and seller agreed upon.

For example, let’s say that a particular stock was quoted at $100 at the close of the market yesterday, and is in high demand today due to some good news overnight. The buyers want to buy at the lowest price that they can get, but the people that already own the stock know about the good news, too. Most of them want to hold on to their stock. A few of them decide that they will sell their shares to those that want them, but only if they can get a premium price. They find some willing buyers, and the stock price goes up.

This can work the other way, too. You could have a situation where many of the people holding the stock want to get rid of it, and of course they want to get the highest price they are able, but not many want to buy it. Some sellers will drop their price until they find a willing buyer, the stock is traded, and the newly quoted stock price drops.

Volume tells us how active the stock has been during the day. It is not directly related to the stock price. A price could go up in high volume or low volume. When the price goes up, it means that the last stock that was traded was sold for a higher price than the previous trade. It only takes one trade to move the price.

By looking at the volume, we can get a better picture of what is going on with a stock. When a stock trends up, but there is low volume, we see that there are not many buyers and sellers. The fact that the price went up means that there are a few people eager to acquire the stock, and some of the sellers are willing to part with them at a higher price. If we see high volume, it means there are lots of buyers wanting to get in, and lots of sellers are ready to exit at the resulting higher prices.

Answer 2

No, it is not true that the number of buyers and the number of sellers are equal to each other nor is it true that when more people are buying, stock price increases.

It is the net aggregate buying or selling volume at a given price not the number of buyers and sellers that moves price. 10 buyers of 100 shares each has the same effect as one buyer of 1,000 shares. IOW, more buying volume at current price than shares available at current price moves price up and vice versa to move price down.

For example, stock XYZ is has a current price of $50.00 x $50.10 with a size of 8x4. That means there is bidding to buy for 800 shares at $50.00 and offering to sell of 400 shares at $50.10 . That 800 shares could be one buyer for 800 shares or 8 buyers for 100 shares each.

In order for price to rise, all of the current volume for sale ($50.10) must be taken out and if no new sellers come in at $50.10 then the ask price will move up. If excess buying volume takes out higher ask prices, price will continue to rise.