Volume Analysis of Stock is a very important part of technical analysis. Normally, retail investors are confused while doing volume analysis. One of the most common queries is that in some of the videos, i mentioned that when the volume is high or increasing then it implies that big players or smart money is active in the stock or an index. Whereas in other volume analyses, I mentioned that when the volume is low then it implies that smart money is active. To clarify this confusion, first, we need to understand the definition of volume in the cash segment and in the derivatives segment. In equity, the volume is a total no of shares that exchanged hands on any given normal trading days. Whereas in derivatives, the volume is no of options contracts exchanged between the buyer and the seller.
In the cash segment, volume analysis suggests that the increase in volume coupled with the high deliverable quantity implies that some serious buying or selling depending on the price movement. You can divide the volume by no of trades to find out whether the big player or retail investors are active in the stock or index.
Whereas in the derivatives segment, you can divide the change in OI with the volume to find the activity of big or small players. Also, you should check whether fresh positions are created in the derivatives or existing positions are closed.
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