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I started to learn about stock trading and I'm trying to crosscheck every concept with a real use case. hence, not sure I understood everything about volumes. Actually I'm going to take the example of "Zoom video communications" (cfr. attachment)

Since March 16th, price is going up and is supported by the volume which is always equal or slightly higher than the average volume ( 13M). However, on March 23rd, volume more than doubled (28M) and the next day, we can see that this had the opposite effect on the price. In fact, the price collapsed on March 24th.

Naively, I would have expected the price to keep going up as it was supported by increase in the volume. Hence, I'm confused and not sure I completely understood all the concepts

Could you please clarify my understanding?

thanks a lot

Zoom video stock

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There is no correlation between volume and price.

There can be a ton of volume on a day when the price moves a lot, or there can be a ton of volume when the price barely budges. Volume doesn't imply direction of the price movement. Volume is just a count of the number of shares that exchanged hands. It doesn't tell you if people were willing to sell no matter how low the price went, or if they were willing to buy no matter how high the price went, or if the trading all took place in a narrow price range.

There can be a ton of volume on a day when the market as a whole was very volatile, but the end of the day price can be virtually unchanged compared to the day before.

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  • thanks for your answer. ok I understand but in tradingview.com , the volume indicator shows if the volume had positive effect (green) or negative effect(red) on the price. what I mean is that if lot of buyers think that the price is "cheap" then they will buy a lot (which makes the price to rise)
    – Myamotooo
    Apr 2, 2020 at 13:01
  • A lot of buyers thinking that price is cheap doesn't mean that price rises. There may be an offsetting amount of selling volume.
    – Bob Baerker
    Apr 2, 2020 at 13:05
  • actually, I was using the following interpretation to think that the price was going to continue to rise: marketrealist.com/2014/12/interpret-volume-technical-analysis "When the stock price increases and volume decreases, it indicates traders’ indecision to buy the stock." For Zoom: I was noticing that volumes and price were both higher for several consecutive days so I thought that the price was going to continue to rise.
    – Myamotooo
    Apr 2, 2020 at 13:18
  • Technical analysis is not a generally accepted method for predicting stock returns. There is probably some truth to it (price momentum is an example; when prices go up they tend to keep going up), but there is also a lot of bad advice and spurious correlations. Trading volume is correlated with volatility, so you'll generally find that price changes significantly and thus a lot of post-hoc explanations for why it did so. If volume has a real effect on price direction, you'd better find more serious studies showing this than a short blog post.
    – csiz
    Apr 2, 2020 at 17:03
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Throughout the day, if a similar amount of buying and selling volume occurs at current price, there is equilibrium and price goes nowhere. It doesn't matter how high or low the volume is, there's equilibrium.

If an excess of buying volume occurs, price rises. The longer this continues, the higher share price goes.

Note that it is the aggregate buying and selling volume transacting that matters rather than the number of buyers and sellers. 10 buyers of 100 shares each has the same effect as one buyer of 1,000 shares. So it's not the number of buyers and sellers but it's the buying pressure volume versus selling volume that moves price up (or vice versa to the downside).

In less technical terms, suppose a pharma company announces FDA approval of a new medicine. Volume rises sharply as does price. Now suppose instead they announced that a highly profitable existing drug was under FDA examination for possible harmful effects. Volume would soar but price would crater.

Volume does not indicate price.

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  • Hello , I think we can see in tradingview.com if the volume has a positive or a negative effect. If you open the image that I attached : - Starting from March 16th, volumes are in green (I understand from this, that those volumes had a positive effect on the price) -These series of positive effect continued until 25th . we can see that the price rose dramatically. until 26th where it collapsed. After reading your post several times, I think I understand what you want to say. Basically , maybe on 26th there was a bad news or another factor which made the price to collapse
    – Myamotooo
    Apr 2, 2020 at 13:00
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It doesn't follow that high volume means the price will go up. Yes, the volume could be high because lots of people think the stock is undervalued and are rushing to buy. But the volume could also be high because lots of people think the stock is overvalued are are rushing to sell. If news came out that a company had some sudden, major problem -- a big lawsuit maybe -- I'd expect volume to be high as lots of people try to dump the stock before the company goes bankrupt.

It may be that, statistically, high volume tends to be associated with an increasing stock price. That is, that high volume is because many people want to buy more often than it is because many people want to sell. I haven't studied the statistics to know. But it is certainly not a simple one-to-one relationship.

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