What is the Turnover Rate?
Definition
Turnover rate, also known as trading volume ratio, measures the frequency of stock turnover in the market over a certain period of time. It is one of the important indicators reflecting the liquidity of stocks.
The formula for calculating turnover rate is: Turnover rate = Trading volume during a certain period / Circulating shares × 100%
What Signals Does Turnover Rate Send Us?
When combined with the stock price trend, turnover rate can convey important signals to investors:
High Turnover Rate: Indicates high trading activity in the stock, often seen in hot stocks. Stocks with high turnover rates are often pursued by short-term funds, resulting in greater price volatility but also higher risk.
Low Turnover Rate: Indicates that the stock receives relatively little attention, and trading is relatively quiet. Except for some stocks with highly concentrated chips, stocks with low turnover rates typically exhibit relatively flat performance.
Volume Does Not Match Price Trend: When the stock price continues to rise but the trading volume sharply increases and the price rise is weak, or even when good news leads to a price decline, it indicates significant volatility at high levels, possibly due to institutional funds exiting the market.
Gradual Decrease in Volume: After a significant rise in stock price, if the trading volume gradually decreases, it indicates that the price increase is only supported by confidence, and funds are exiting.
Attention to Low Turnover Rate at Low Levels: When the stock price is at a low level, if the turnover rate reaches around 4-5% on a given day, investors should pay attention. During an upward trend, if the turnover rate exceeds 10-15%, caution should be raised.