The way to measure participation in the Market is to keep track on the volume of transactions that happen in the Market.

 Volume in the Market is measured by looking at the total number of shares traded or the total value of shares traded during a specific time interval – usually one day. This gives Market watchers an idea of how keen (or otherwise) the Market participation is. This data is freely given out by the stock exchanges on their websites.

Typically, when the feeling is bullish and the general sentiment is optimistic, there is a lot of buying activity and participation, i.e. volume, as seen especially in second half of 2007. Similarly, when there is panic and fear, there is a lot of selling and again, volume is high, as seen in the first half of 2008.

The current volumes are now at about one-third of the high volumes of Oct to Dec 07 and similar to those seen in early 2007. They are also about 40-50% of the volume of the mid 16th July Nifty low of 3,816.

A reduction in volumes would be expected after the fall we have had since Jan 08 as many who suffered losses would have “left”. However, the volumes are much lower than what one expects, especially since the Market has risen a healthy 8-10% from the lows of mid July 07.

This begs the question: “Why are the volumes so low?”, “Why are Market participants not doing as much as one expects them to?”

The answer is this: the Market participants and therefore the Market is not sure what to do. When the Market is sure of what to expect, there is a lot of buying (if the expectation is positive) or a lot of selling (if the expectation is negative). It is when the Market is NOT sure about what is likely to happen that it sort of withdraws into a shell and overall participation falls as it has when this is being written – end of August 08.

Which brings us to the Q: What is all this important?

Well, whether you are investing or trading, a key issue is whether this is the “ideal” time to enter. Simple said, the answer is No! When the Market is confused, as it seems to be right now, it is better to wait on the sidelines and let the Market get some direction before committing oneself.

This is even more important if you agree with a famous saying in the Markets, “Stock can fall under their own weight!” In other words, if there is nothing positive to take the Markets up, then they will come down simply due to lack of good news. Who said gravity can’t pull stock down?