Volume in the stock market refers to the number of unit shares traded for stocks or futures contracts over a given time period. The volume breakout trading system is very popular in the stock market, but if you only use volume parameters for trading or invest in share market, it can be a losing trading system for you.
The volume based trading is said to be unreliable owing to various reasons. Here are some of the reasons:
In general, volume breakout occurs in response to positive or negative news flow in the stocks. This news could be true or false, and no one checks the quality of the news, resulting in a large volume in the stock. By virtue of some positive news flow, it provides exit routes for large investors.
Volume is not an indicator because it is not based on any data point calculation. For stocks, volume only represents the number of unit shares that change hands.
Thetrading system based on volume breakouts is not a leading indicator. It is a lagging metric.
Volume only represents investor interest. It can be either positive or negative. Before we invest or trade, we must verify it.
The stock movement is represented by the volume breakout trading system. Before we trade, we need to validate the movement to see if it is sustainable.
Large investors never trade in large amounts in a single day. As a result, any increase in volume does not guarantee that a large player is purchasing the stocks.
Low volume does not imply a shift in trend. It usually occurs when there is a lack of investor interest.
If a large volume appears on the stock price spread during an uptrend, it is a sign of a reversal.
With that being said, every security and trading strategy has a degree of unreliability attached to it. At the end of the day, it’s up to the investor who gets to call the shots and decide where and how they are going to invest their money. However, if you think unreliability is the deal breaker, you can consider investing in other securities in share market in India. No matter what section of the market, you are planning to invest, Tradeplus will be there to help you facilitate your investment by equipping you with the right tools, expertise and services.