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Down volume occurs in the stock market when a particular stock has dropped in price on a particular day. The volume of the stock is the total amount of shares traded on a single day, whether those shares are bought or sold. It's important to note that a stock's down volume can be particularly high even if the price of the stock dropped only a very small amount. Using volume data in conjunction with price movement is a method of technical analysis by which investors attempt to spot market trends.
Investors seeking statistical information that will help them determine hot and cold stocks often gravitate to stock prices as measured over a period of time. Stock volume can also be particularly useful, especially when used along with price data, as it can demonstrate the overall upward, or bullish, momentum or the downward, or bearish, momentum of a particular stock. A stock that is down volume has dropped in price that day, and the amount of volume can show the significance of that price drop.
What investors must understand is that down volume can occur even if the actual volume of trading on the stock has increased from the previous day. All it takes for a stock to be categorized as such is a drop in price, while the actual volume is irrelevant to the terminology here. By contrast, a stock that is up volume is one that has seen its closing price rise from the previous day's trading.
For example, imagine a stock that drops in price from $50 US Dollars (USD) per share to $40 USD per share over the course of a single trading day. On that day, a total of 600 shares of the stock were sold, and another 400 were bought. The stock is down volume at 1,000 shares, which is 600 plus 400. If the price rose to $45 USD the next day thanks to 200 shares being bought and only 100 being sold, then the stock would be considered up volume, even though the total amount of volume was actually down from the previous day.
Volume ultimately measures the liquidity of a particular stock, which is the ability for an investor to either find a buyer or a seller for a stock. When matching the volume up with price levels, it can show the overall reliability of a stock trend. For example, a low down volume may mean that a price drop is only temporary, while high volume numbers may indicate that the stock will continue to plummet in the near future.
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