On any given major stock market, from Wall Street to Bombay or even from London to Hong Kong, billions of shares are traded every single day that signifies trillions of business capital that is exchanged back and forth.
This acquiring and selling action represents volume, which is the result of the exchange of stock or commodity between both buyer as well as seller. Volume, then, will be the prime mover in the cost for a given stock or commodity in a given period of time.
If there is more acquiring than selling for an ABC stock, then what results is the rise in price for that stock. Also, if there's more selling than acquiring in ABC stock then share price is most likely to fall in value. This makes the study of volume a valuable indicator to determine if a stock is either in demand or likely to boost in share value in the future.
Quite a few aspiring stock investors practice a method of stock trading popularly termed as "momentum investing". This is where one attempts to identify stocks which are rising and falling in a given price range for a length of time and are most likely to have explosive moves.
The confirmation for these explosive moves are taking long positions at the upper end of that price range or short positions on the lower end of that price range on greater than average volume.
The study of price and volume relationships also unveils a condition called "climatic volume" which to a skilled investor can reveal a complete reversal in a given trend. Just after a stock has had strong advance or even decline is where climatic volume can result.
Immediately after an explosive move, usually the result of a volume spike, climatic volume results when traders come into the very last stages of that advance of decline and price shifts sharply at the last move of its trend.
The research into the connection between price and volume can give both technical and systemic investors the confirmation that they have to get in on explosive moves. It also serves as signals as to when it is time to get out and possibly even recognize a brand new trend in transition to exploit profitably.
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