Significance

• The stock market may reflect mass sentiment about the economy. Volume is one of the major predictive indicators of changing market trends, according to Dow Theory and investment theories. Dow Theory says that any stock market trend is announced by changes in volume.
  
  Volume of the Dow Jones industrial average -- the most commonly reported U.S. stock index -- reports volume in the stocks comprising the index. Rise and decline in average volume of the DJIA usually reflects overall market volume expansion or contraction.
  
  

Size

• Volume of stocks traded indicates the number of shares exchanged. This exchange of buyers and sellers creates a market for any stock market security. Total stock volume is calculated by adding the volumes of stocks listed on the exchange. If investors buy and sell 2 million ABC, 4 million XYZ, 8 million GHI, and 10 million JKL, total volume equals the sum, or 24 million shares.
  
  

Function

• According to "The Secret Science of Price and Volume: Techniques For Spotting Market Trends, Hot Sectors, and the Best Stocks," numerous investors track volume and price before deciding what stocks to buy or sell. Many concurrent factors must be considered in predicting or analyzing price direction.
  
  Stock exchanges, such as the New York Stock Exchange, have certain volume requirements of its listed companies. According to "Stock Market Liquidity: Implications for Market Microstructure and Asset Pricing," high average volume in any security signals ready liquidity. That is, when an investor decides to buy or sell the security, she will not suffer from a large spread between buy and sell prices. Thinly traded stocks may also have irregular trading volume because of a small float, or number of shares outstanding.
  
  

Considerations

• Volume of a stock exchange or volume in any security may also reflect investor enthusiasm. A large volume in a security may predict announcements concerning earnings, dividends, management changes, mergers and acquisitions activity, or a pending announcement.
  
  

Potential

• Volatility and stock volume may indicate investor enthusiasm. A widely followed company has an average beta value of 1.5. The beta value refers to the rate at which stock moves relative to the overall market. The market's beta average is always 1. Prior to an earnings announcement, the stock's beta doubles. High volume may accompany increased volatility.