What is average daily trading volume?
Simply the average number of shares traded in a day during a certain period of time, typically a month or year. You can compare the current trading volume with the average volume to determine whether the volume is particularly high or low.
Key takeaways
Average daily trading volume is the average number of shares traded per day over a specific period, typically a month or year, used to compare current activity levels.
High average daily trading volume indicates strong liquidity with many willing buyers and sellers, while low volume typically results in cheaper stock prices due to reduced demand.
Stocks with higher average daily trading volumes are less volatile because much larger trades would be required to affect the price compared to lower-volume stocks.
Dramatic rises or falls in average daily trading volume typically signal major news affecting investor views, and volume peaked during the financial crisis before declining.
Trading volume serves as a useful tool for gauging trading momentum and identifying continuous upward or downward price movements in the market.
Where have you heard about average daily trading volume?
Average daily trading volume reached a peak during the financial crisis, but has waned since. If there’s a dramatic rise or fall in the average volume, it usually signifies that there has been some big news that has affected people’s views on the stock.
What you need to know about average daily trading volume.
If the average daily trading volume is high, it means the stock has high liquidity and there are plenty of willing buyers and sellers. If trading volume isn’t high, the stock tends to be cheaper because not as many people want to buy it. Consequently, average daily trading volume can have an effect on the price of the stock.
Stocks aren’t as volatile when they have higher average daily trading volumes because much larger trades would have to take place to affect the price.
Trading volume is a useful way of gauging trading momentum or continuous up or down price movements.