How Trading Volumes Help You Make Higher Profits in the Market

May 19, 2020

Many of my followers on social media have asked me to do videos on specific topics which I post daily.

One of the most important is also something rather basic, the trading volume in a stock, in an index, and in the market as a whole.

In this video, I'll tell you what it is and why you should watch it everyday.

Hi. This is Vijay Bhambwani and I am recording this video still firmly and safely entrenched in my residence because of the lock down. And I also hope that you and your family is staying indoor, staying safe, but watching the markets and keeping your finger on the pulse of the market.

This video is actually trading tutorial. A lot of you have requested that I share some of the insights and some of my experiences, of which I have 34 years in this market, 27 of them being as a founder, promoter of an incorporated company that trades all kind of assets, whether it's commodities, currencies, bonds, equities, derivatives on equities. We trade any and everything.

So the kind of insights that you get with time and experience is something that I am willing to share with you. And this video is all about why I post certain things on my social media account, including the telegram account of Equitymaster, the handle of which is Equitymaster official. I would want you to join this telegram channel because I put up two or three posts every day Monday to Friday, and I would want you to read these posts because they're informative, educative, and they are profitable.

One of the three posts that I put up on my social media account and Equitymaster's account also is traded turnover on the NSE futures and options derivatives segment. Why do I do that? What is the significant significance of the turnover? Why you should care and what it actually tells you about the market?

What if you wanted to travel from your house to, let's say point A. You leave home, you're en route. You're walking along the road and you find it's a very deserted road. Be honest. What are you thinking? You're a little concerned. You may be apprehensive and all kind of thoughts coming into ahead. Will I get mugged? Will I be robbed? Will somebody run me over? Am I doing the right thing.

Why? Because nobody's walking down that road. Would you really want to trade something if the trading volumes in that particular security of market is actually falling? Trading the markets is nothing but our day to day life experiences in numerical format, in a number format. It's not rocket science. It might appear a little intimidating, thanks to the media, thanks to the finance industry, and the professionals who take it upon themselves, I have been a part of it also, so I'm as guilty as everyone else, can't be absolved, but I have tried to keep things as simple as possible.

But the market? It's sexy to organise and complicate, assemble, things by giving at exorbitant names, right? So basically what we are trying to do is very simple. We are trying to equate day to day life and trying to extrapolate to our trading experiences and seeing if the two actually go along.

If you don't feel like walking down a lonely road, why would you want to trade a market in which the volumes are low, which basically tells you that number of participants in the market are far fewer than there should be.

Secondly, why do I put up volumes? Because volumes also bring about more efficient price discovery mechanism. What is price discovery?

In the bad old days, we had a public outcry system where you went inside the trading ring. There was interaction, human to human. This was to sell. This was too buy. Right? And you kind of gesticulated with your hands and negotiated prices. Everybody was shouting at the the top of their voices like a fish market. So hand signals, human errors, errors of communication. It was also a quote driven market. So you went to a market, a specialist on the market maker, he would give you a two way quote 55 57 if you wanted to sell 57, if you wanted to buy 50 if you wanted to buy, it was 57. If you wanted to sell, it was 55. The Rs 2 difference was his spread.

Enter the digital and electronic markets and it's an order driven market. You put in an order somebody else puts in an order. You're a buyer. He is a seller. If both your prices match, transactions take place. So we are not in a quote driven market. We are an order driven market. In an order driven market the higher is that turnover, the smaller will be the difference between buy and the sell.

All the bid and the offer spread. The lower is a spread, the higher is your take home profit. If you're going to spend too much money trading securities, which have a very high spread, believe me, you are gonna take smaller money home.

So you want to trade a market in which the turnover is high, like you that a lot of other people trading that market or that particular counter. And since it's a liquid market, the execution cost or the trading cost in terms of spreads, in terms of price discovery will be more to your advantage.

Instead of being taken in by words, instead of being taken in by tweets, Facebook posts LinkedIn posts, Instagram photos, prefer to look at numbers and develop a head for numbers.

The market is completely digitised and binary. It talks to you in a language of numbers. If you try to understand what it is telling you, you can see that the market is actually talking to you day after day. It's just that we do not listen.

As long as you're listening, I think you have a good chance of making money. So simple things. Do look at the volumes. The more liquid a counter is, the better it is in your favour.

Do follow me on my social media pages also hook up on Equitymaster's Telegram channel with the handle Equitymaster Official. Till we meet again in my next video, signing off from this one, but not before reminding you to click like on this video if you're watching it on YouTube. In the comments section, do let me know what you think about this video and what else you would want me to record for you.

Hold your horses. More tutorials are coming your way. That comment and query and request is evergreen! Your wish is my command. I'll be sending you more tutorial videos. Don't mind not at all.

And do not forget to recommend these videos to your families and friends. Help me spread the cult of knowledge based investments and trading.

Do take very good care of your health, your money, your trades, and your investments. Bye for now. Thank you.

Stay safe!

Warm regards,

Vijay L Bhambwani
Vijay L Bhambwani
Editor, Fast Profits Daily
Equitymaster Agora Research Private Limited (Research Analyst)

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2 Responses to "How Trading Volumes Help You Make Higher Profits in the Market"


May 19, 2020

I am to join



May 19, 2020

Sensible. It would take a long time to master these numbers.

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