The Importance of Volume

Before we start here is a ThinkorSwim Volume Script I use

http://tos.mx/wAk0rJ2

In trading, all that matters is that the "outcome is income" and while that is the goal there is going to be important factors to achieving profitability. The most overlooked part of trading is volume. Volume is the amount of times a stock has traded during its current session. Stocks with low volume tend to lack liquidity especially within the options market. The following post will go over how to identify volume and what I look for when trading.

Volume is important because it eventually leads to more momentum in the underlying security that you trade. Volume is displayed per transaction for the underlying security. There is a lot of ways to look at volume, however volume is most important in places where one is looking to take a trade. Low volume when your setup has arrived or is approaching is not a good sign of a strong trade. For example if a stock is breaking out of critical resistance like $BYND in the chart below and lacks volume you will likely see a rejection ( Fake breakout).

As seen in the chart $BYND was making a new high of day and was approaching multi - week resistance at 145 however there was no volume to support a break above resistance leading to a reversal.