Part of being a day trader is knowing the signs of when to buy and sell a stock, in that sense it is important to be vigilant of the stocks on the watchlist every day and quite often one question arise: Is there a way to tell from a volume chart whether the volume is inclined towards buy or sell?.
Basically the answer is: high volumes means, a lot of people want to buy that particular share and equally a lot of people want to get out of that same share.
Investors sell for two reasons: to take profits or mitigate losses; whether there are many reasons to buy a share, either for short term or long term gains, it could be the ‘attractive’ dividends, or the potential for future capitalization growth, or both, especially if the stock price is a bargain compared to previous historical highs and lows.
There are of course a few things to look for: Opening Price and direction, Announcements.
Opening price and direction
Volume tells you a lot about probability of price movement when viewed in conjunction with support and resistance levels on a price chart. It is like a footprint left by the big boys that have the financial firepower to move prices so it is worth taking the time to understand volume and it’s relationship with price, particularly if you are a short term trader.
First you should look at the opening price, and whether it’s substantially up or down on the previous closing price and yesterdays closing price.
This would give you the sense if the stock is going up (then you should buy) or if the stock is going down (you should sell).
News and announcements
Then continue to take a look at any recent announcements, good news usually attracts investors to buy and translates into a higher opening price and gradual rise as more investors want to buy and more share holders cashing in on the upswing, and taking profits.
Bad news, on the other hand makes many investors (especially large institutional investors and funds managers) nervous and they start selling to mitigate their loses), and the bargain hunters and longer term investors buy as the share becomes more attractrive/cheaper.
Nonetheless, there can also be a high volume of traded shares in the absence of any announcements, (this is also called SPECULATION) as happens quite often with newly listed stocks.
Depending of the impact of the news and the current percentage of change you should decide if buying (Good news and positive change in price) or if you should sell (Bad news and negative change in price)