If you are looking for a direct real time market sentiment indicator than you need to look no more. Trading volume of a stock or what that matter any security is a direct real time market sentiment indicator that when combined with technical indicators can give highly profitable trading signals. When the trading volume is high, it means that the current trend in the market will continue.

Volume figures are very important for traders. Volume data is not possible for currency markets as the market is unregulated and over the counter due to which this data is unavailable. Stock and futures markets have volume data that helps the traders and investors in knowing how heavy a certain stock or futures contract is being traded. In case of futures market, volume figures are delayed by one trading day.

Increase in trading volume is good for traders and hedgers as it means better price discovery.As the futures contracts near the delivery month, volume increases.

You should know the Limit Days in futures market. Limit days are those days when a futures contract makes a big move in a very short period of time with heavy volume. A Limit Up Day is a sign of strength however, a limit down day is usually followed by trading collars.

Now when using the volume information in your trading decisions you should check other indicators to confirm what volume is telling? You need to ask yourself whether the trend is going to change. You need to consider the key support and resistance. You also need to understand the way volume is reported in the stock market and in the futures market. Open interest is the number of active contracts of a security during a given trading period. Open interest is the most useful tool in analyzing potential trend reversals in the futures market.

Open interest only applies to futures and options contracts and not to stocks. Open interest is the number of contracts entered into during a specific period of time but have not been liquidated or settled.

Open interest gives you information about the total number of short and long contracts. Open interest varies with the number of traders entering and leaving the market. It rises by one when a new buyer and a new seller enter the market. Similarly falls by one when a buyer and a seller leave the market. Charting open interest on a daily basis in conjunction with the price charts helps you keep track of the trend in the futures market and can be a very useful tool.

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