An Easy Guide to Reading Average Daily Trading Volume

Intraday trading is one of the popular ways of trading in the stock market. And all the traders want to learn how to use volume in intraday trading and make good returns. In technical analysis, intraday volume plays a significant role in predicting market trends and identifying trading opportunities. However, interpreting intraday volume can be hard for beginners and pros alike. 

So, in this article, we will learn about intraday volume with examples, what volume means in trading, and how to use volume in intraday trading.

What is Intraday Trading?

Intraday trading using a trading app refers to buying and selling securities listed on a stock exchange on the same day. Simply put, intraday trading is buying and selling today. This method is primarily used to maximise capital gains and minimise risks by keeping money invested long-term. 

As an example, let's say a trader buys stock XYZ for 100 at 10:25 AM and sells it at 1:45 PM for Rs 102. Check out the Intraday stocks for today here.

What does volume mean in trading?

In trading, volume is how many shares of a stock are traded during a given period of time. In general, stocks with more daily volume are more liquid than those without because they're more active. 

Moreover, it is important to measure volume in technical analysis because it measures the relative significance of market moves.

The Simple Way to Read Intraday Volume

You can read the intraday volume using several analytical techniques. However, if you use the below technique, you can easily get practical information in just a few hours. So, here is the technique to read intraday volume:

1. Volume Run Rate vs. Average Daily Volume

You can quickly detect real-time intraday volume by comparing it to the preselected moving average. In charting packages, the average daily volume is typically preloaded based on a 50- or 60-day simple moving average. 

Moreover, the calculation of intraday volume is easy. To calculate, just divide the chosen period by the total volume booked during that time frame. However, to better understand, let's look at an example:

For, over the last 60 trading days, calculate a stock's average daily trading volume. Add up the volume for each day within that period and divide it by 60 to get the average.

Now, watch the stock's volume during the current trading day. Let's say there are 200,000 shares traded during the middle of the day.

Take the current volume (200,000 shares) and divide it by the number of hours or minutes since the market opened. For example, if four hours have passed, divide 200,000 shares by four hours, making 50,000 shares per hour.

Next, calculate the difference between the volume run rate (50,000 shares per hour) and the average daily volume (let's assume it's 150,000 shares). So, this analysis shows that the volume run rate is lower than the average daily trading volume. Thus, it indicates that trading activity is relatively low.

So, by comparing the volume run rate to the average daily trading volume, you can determine whether the current trading day has higher or lower participation levels. Additionally, you can gain insight into market sentiment and make informed trades.

2. Analyse and visualise intraday volume visually - Using the Quote Sheet Method

Here you can compare average daily volume with intraday volume visually and analytically. On a quote sheet, just compare average volume with real-time volume and compare dozens of securities simultaneously.

At the bottom of the chart, draw a volume histogram and include a running total of the average daily volume. Moreover, you can use this method for end-of-day analysis or measuring the impact of rising or falling averages.

Additionally, if you use the quote sheet method, wait until the end of the first hour to look for securities that have already traded one-third of the average daily volume. It is assumed that roughly a third of the day's volume will be booked in the first hour, another third in the last hour, and the remaining third after the bell rings.

Observe the run rate again after the second hour to make sure it matches your initial observations. It's important because overnight themes might not be fully discounted, so participation levels might stay high.

Conclusion

In the stock market, intraday trading is a popular method. And learning how to use volume can help you make money. Because volume plays a big role in predicting market trends and finding trading opportunities. However, interpreting intraday volume can be tough for beginners and pros. But you can use tools like the quote sheet to make better decisions. And get an idea of how the market is doing by comparing the volume run rate to the average daily volume. 

These are the simplest methods to read intraday volumes. So, today put these techniques to use to make your intraday trading plans more successful.

Know more about emi calculator