The importance of trading volume for market indices such as the Dow Jones and FTSE 100 is a topic that has been debated by many for years. If you are just starting out in the trading world, this is one of those topics that you will want to get a good handle on. If you don’t understand this concept at its core, it can really be a little bit overwhelming. So, let me give you a brief run through on what I believe the answer to this question is.
The first thing that needs to be understood is the difference between trading costs and brokerage fees. When I talk about trading costs, I am talking about the price that you pay your broker in exchange for the right to buy or sell the Dow Jones and/or FTSE100. While some people will tell you that trading costs are a good thing, I completely disagree. They have an extremely negative impact on your profit margins. Therefore, it is absolutely necessary for you to make sure that you find a discount broker that offers low trading costs.
On the flip side of the coin however, there is no reason for you not to pay high trading costs either. There is nothing wrong with paying top dollar for a stock or investment. Many investors earn large dividends from their stock investments and never have to touch the money that they earned. The problem comes when the investor overpaid for their stock because he or she did not have enough of it under their mattress. To avoid doing that, here is Gary Fullett article.
The second topic that you need to understand is why is trading volume important for market indices. The reason is simple. Trading volume determines how fast a particular share is moving up or down. If you have a lot of shares traded per minute, you can gain a significant advantage over other investors if you can pick the right shares to invest in.
So, the question still remains as to why is trading volume important for market indices? The answer is simple. If you have a lot of fast moving shares, you will always have cash in hand. This is the only thing that prevents most investors from trying to day trade on the stock market.
You can see this in action whenever you are watching the stock market ticker. Watch the numbers and you can see thousands of people and institutions getting into trades almost instantly. It is as if the market has a mind of its own and is always making sure that you do not have any trades in your direction. Of course, the market does not tell you when it is time to buy or sell. The only way for you to know when to buy is when it tells you that it is time to buy. Therefore, you must take action according to what the market indicator is telling you.
There is a big difference between market index movements and market moves. While market indices can provide you with a good gauge of where a certain stock might be heading, trading movements on the other hand is all about timing. You have to know when it is better to buy or sell. Timing is the secret to knowing when to enter a trade and when to walk away.
Market index movements can act as a good guide of where to make short term moves, but they should never be used as a rule book. Instead, you need to use your gut instincts and also use the knowledge you have gained over time through trial and error to help you make these decisions. It is much easier to take risks when you are buying and selling stocks often compared to waiting for a market index to tell you when to buy and sell. If you want to make consistent profits, you need to know when to take a risk and when to fold. Many traders tend to wait for an indicator to tell them that it is time to get into a trade. They end up regretting their decision when they loose money in a bad trade.