Liquidity
Stock
chart
volume
also
shows
us
the
amount
of
liquidity
in a
stock.
Liquidity
just
simply
refers
to
how
easily
it
is
to
get
in
and
out
of a
stock.
If a
stock
is
trading
on
low
volume,
then
there
aren't
many
traders
involved
in
the
stock
and
it
would
be
more
difficult
to
find
a
trader
to
buy
from
or
sell
to.
In
this
case,
we
would
say
that
it
is
illiquid.
If a
stock
is
trading
on
high
volume,
then
there
are
many
traders
involved
in
the
stock
and
it
would
be
easier
to
find
a
trader
to
buy
from
or
sell
to.
In
this
case,
we
would
say
that
it
is
liquid.
Let’s
look
at a
couple
of
common
volume
patterns
on a
stock
chart:
A
surge
in
volume
can
often
signify
the
end
of a
trend.
Here,
on
the
left
side
of
the
chart,
this
stock
begins
to
fall.
Volume
increases
dramatically
(first
green
arrow)
as
more
and
more
traders
get
nervous
about
the
rapid
decline
of
this
stock.
Eventually
everyone
piles
in
and
the
selling
pressure
ends.
A
reversal
takes
place.
Then,
in
the
middle
of
the
chart,
volume
begins
to
taper
off
(red
circle)
as
traders
begin
to
lose
interest
in
this
stock.
There
are
no
more
buyers
to
push
the
stock
higher.
A
reversal
takes
place.
Then,
on
the
right
side
of
the
chart,
volume
begins
to
increase
again
(second
green
arrow)
and
another
reversal
takes
place.
This
chart
is a
good
example
of
how
the
trend
of a
stock
can
reverse
on
high
volume
or
low
volume.
Mistakenly,
some
traders
think
that
stocks
that
stocks
that
are
“up
on
high
volume”
means
that
there
were
more
buyers
than
sellers,
or
stocks
that
are
“down
on
high
volume”
means
that
there
are
more
sellers
than
buyers.
Wrong!
Regardless
if
it
is a
high
volume
day
or a
low
volume
day
there
is
still
a
buyer
for
every
seller.
You
can’t
buy
something
unless
someone
is
selling
it
to
you
and
you
can’t
sell
something
unless
someone
is
buying
it
from
you!
Volume
and
Price
So
if
all
volume
represents
is
interest
in a
stock,
when
is
it
useful?
The
only
time
volume
is
useful
is
when
you
combine
it
with
price.
For
example:
Expansion
of
range
and
high
volume
- If
a
stock
is
drifting
along
sideways
in a
narrow
range
and
all
of
sudden
it
breaks
to
the
upside
with
an
increase
in
range
and
volume,
then
we
can
conclude
that
there
is
increased
interest
in
the
stock
and
it
will
probably
continue
higher.
Narrow
range
and
high
volume
- If
a
stock
has
very
high
volume
for
today
but
the
range
is
narrow
then
this
is
called
churning.
In
this
case,
significant
accumulation
or
distribution
is
taking
place.
Ever
heard
the
saying,
"volume
precedes
price"?
Many
times
you
will
see
volume
pick
up
right
before
a
significant
move
in a
stock.
You
can
see
that
interest
is
building.
On a
stock
chart,
look
for
volume
to
be
higher
than
the
previous
day.
This
is a
sign
that
there
may
be a
significant
move
to
come.
Take
a
look
at
this
example...
This
stock
rallied
for
three
days
in a
row
on
relatively
low
volume.
Then,
on
the
fourth
day,
volume
increased
dramatically.
This
increase
in
volume
began
the
move
to
the
downside.
Interpreting
volume
on a
stock
chart
can
be
confusing!
Just
remember
that
the
price
action
is
the
most
important
factor
on a
chart.
All
else
is
secondary.
