Friday, July 05, 2013 / TheAnalyst
Determining highly liquid and easily tradable stocks on the Nigerian bourse; like all other trading exchanges, is a function of volume trade analysis i.e. the number of shares traded between buyers and sellers over any given period of time. “When it comes to trading, particularly for day traders, high volume is crucial, as the higher the volume the more liquid the security is. If you own a stock that has extremely low daily volume, it may be difficult to get rid of in a short timeframe” according to Investopedia.
Brokers and traders understand that the higher the volume during any given price movement, the more significant the move is; and they continually watch out for that and anticipate same. Why? Simple enough, its because the volume movements measures the commitment behind stock price movements i.e. letting you know the scope of participation and involvement in that move; and thus its direction in coming days.
For example, If a stock moves on low volume then that means that relatively few people are participating in this movement. And if a stock moves on high volume then many traders or investors are involved in that movement and it will be easier to find someone to buy from or sell to. Volume further tells investors the emotional excitement or lack thereof in a stock.
A quick review of the total volume traded on the Nigerian bourse at the end of Q2 ’13 would indicate that TRANSCORP recorded the highest volume of 5.99bn (off the 8th highest total number of trades and 8th value traded) ahead of UNITYBNK and UBA with 4.76bn and 4.14bn volumes traded respectively. See table below:
Instructively, the Financial Services sector traded the highest number of volumes at the end of Q2 ’13 with 42.89bn total sector volume traded representing about 70.52% of the total volume traded while Conglomerates and the Consumer Goods sectors came second and third with 6.15bn and 3.34bn volumes traded respectively (representing 10.12% and 5.50% contributions).
Just as volume traded in a stock measures the degree of commitment behind such stocks, significant increase or abnormal movements in the trading volume of a stock can be a precursor of a major movement or development that needs to be understood; given that such moves mostly arise when institutional investors are buying into an equity (or in some cases getting out in a hurry).
At the end of Q2 ’13, the below listed stocks have at one time or the other, recorded abnormal volume growth with TRANSCORP, IHS and UNITYBANK leading the way with 1.06bn, 496.33mln and 418.48mln volumes respectively.
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