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I want to know how to determine the coming ups and downs in share price using the trading volume that can help me analysis for coming events.

Is there any reasonable technique for this purpose?

For example, I want to know that, the volume of current month is total 102505500 and high share price is 205 and low is 165, then how can I analyze for next coming month whether it will go up or down?

  • Quite vague in description. Could you add some more details. – DumbCoder Oct 10 '14 at 8:00
  • yes. i mean that any analysis or technique that can reach me. as the stock traded on current day between $20 to $28 which are high and low prices and closing price is $26 while opening price is $22. than how i will determine that this stock can trade on next day between following target. have you any technique or research. – mr.fahad Oct 10 '14 at 9:10
  • because sometime i watched the stocks that when volume is lower the stock price fall and when volume is higher and price grow up. – mr.fahad Oct 10 '14 at 9:11
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There is no direct relationship between volume and stock price. High volume indicates how much stock is changing hands. That can be because people are enthusiastically buying OR enthusiastically selling... and their reasons for doing so may not agree with your own sense of the future value of the stock. Higher volume may mean that the price is more likely to change during the day, but it can be in either direction -- or in no direction at all if there isn't a general agreement on how to react to some piece of news.

It's a possibly interesting datum, but it means nothing in isolation.

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    It's actually because they're both enthusiastically buying and enthusiastically selling :-) – Guy Sirton Oct 11 '14 at 19:25
  • Yeah, but the question is whether the triggering factor is because demand has gone up, or because supply has gone up. The former will be associated with higher prices, the latter with lower prices. – keshlam Oct 12 '14 at 3:29
  • so that, Keshlam you mean that volume can't affect the price of share? – mr.fahad Oct 20 '14 at 17:32
  • Volume may affect the price of the share in either direction or in no direction at all, depending on why the volume is up. Changes in price of the share may affect volume, usually more directly. Usually something else drives both. – keshlam Oct 20 '14 at 18:00
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You can't tell for sure. If there was such a technique then everyone would use it and the price would instantly change to reflect the future price value.

However, trade volume does say something. If you have a lemonade stand and offer a large glass of ice cold lemonade for 1c on a hot summer day I'm pretty sure you'll have high trading volume. If you offer it for $5000 the trading volume is going to be around zero. Since the supply of lemonade is presumably limited at some point dropping the price further isn't going to increase the number of transactions.

Trade volumes reflect to some degree the difference of valuations between buyers and sellers and the supply and demand. It's another piece of information that you can try looking at and interpreting. If you can be more successful at this than the majority of others on the market (not very likely) you may get a small edge. I'm willing to bet that high frequency trading algorithms factor volume into their trading decisions among multiple other factors.

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There tends to be high volume around big changes in stock price. The volume of a stock does not remain constant and the term "fat fingers" can influence price.--> http://www.bloomberg.com/news/2014-10-01/that-japanese-fat-finger-can-absolutely-happen-in-u-s-.html

That being said keshlam is 99% right when it comes to a stock moving when their is no news or earnings announcements.

Check out these papers.

http://onlinelibrary.wiley.com/doi/10.1111/j.1475-6803.2010.01285.x/full

They do a time series analysis to try and predict future prices off of past demand during news events. They forecast using auto-regressive models.

google "forecasting autoregressive model" and the upenn lecture will be helpful.

I would post another link but I cannot because I do not have enough rep/

This is more of a quant question. Hope this helps.

JL

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As said previously, most of the time volume does not affect stock prices, except with penny stocks. These stocks typically have a small volume in the 3 or 4 figure range and because of this they typically experience very sharp rises and drops in stock prices, contrasting normal stocks that go up and down constantly every minute. Volume is not one thing you should be looking at when analyzing a stock in most cases, since it is simply the number of people of trades made in a day. That has no effect on the value of the company, whereas looking at P/E ratios, dividend growth, etc all can be analyzed to see if a company is growing and is doing well in its field. If I buy an iPhone, it doesn't matter if 100 other people or 100,000 other people have bought it as well, since they won't really affect my experience with the product. Whereas the type of iPhone I buy will.

  • hmm that is good for my instance. it means that stock can't be affect by volume trades in current day. – mr.fahad Oct 20 '14 at 17:27
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Volumes are used to predict momentum of movement, not the direction of it. Large trading volumes generally tend to create a price breakout in either positive or negative direction. Especially in relatively illiquid stocks (like small caps), sudden volume surges can create sharp price fluctuations.

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