BALTIMORE (Stockpickr) -- For technical traders, volume is a critical part of any stock's trading behavior. A glimpse at a stock's volume can give you major clues about a stock's tradability, the probability of a successful trade, and the efficacy of a price move. But because interpreting volume numbers can be complicated, would-be traders ignore them all too often.Today, we'll take a brief look at the role volume plays in technical analysis -- and how to put volume to work for your next trade. Volume is simply the number of shares (or contracts, in the case of futures or options markets) of a security that trade hands over a set period of time. That definition is important; while many investors think of volume as directional, with volume on an up day indicating buying and volume on a down day indicating selling, any share that's added to a day's volume tally is the result of both a sale of stock and a purchase. One can't happen without the other. Most financial Web sites give daily volume data, but trading platforms can distill volume by any interval that can be charted. Related: Must-See Charts: Cell Stocks Lock in Gains, Banks Bottom It's important to remember that volume isn't a metric that is comparable between stocks. While a stock's trailing 52-week gains or profit margins may be comparable with other issues in its industry, its trading volume isn't. Since arbitrary factors like shares outstanding and trading interest can significantly impact trading volume, it only makes sense to compare a stock's volume against itself. Most often, volume is depicted as a histogram below or behind the price chart. There are other, more complicated ways of looking at volume -- we'll explore those in a minute. Volume as a Liquidity Criterion Volume is an excellent indicator of a stock's liquidity. That's because a higher number of transactions means that buyers and sellers are able to agree on a transaction price, and the bid/ask spread is minimized. In practice, volume's especially important in the case of options or small-cap stocks.
Twitter and become a fan on Facebook.