Volume indicators are used to confirm the strength of trends. Lack of confirmation may warn of a reversal.
The Importance of Buying Volume and Selling Volume
Volume trading requires you to pay careful attention to the forces of supply in demand.
Volume traders will look for instances of increased buying or selling orders. They also pay attention to current price trends and potential price movements.
Increased trading volume will lean heavily towards buy orders. These positive volume trends will prompt traders to open a new position.
On the other hand, if the cash flow and trading volumes decrease-- we see a “bearish divergence”, meaning that it will likely be an appropriate time to sell.
You also need to pay attention to the relative volume—regardless of the raw number of transactions occurring in a trading period. Ask yourself how is the prospective asset performing relative to what was expected?
With practice, volume trading strategies can yield wins for your portfolio 77% of the time!
Some of the more sophisticated indicators compare volume and price movements.
Volume analysis is the technique of assessing the health of a trend based on volume activity. Volume is one of the oldest day trading indicators in the market. The volume indicator is the most popular indicator used by market technicians as well.
The volume indicator is one of the simplest methods for observing buying and selling activity of a stock at key levels. The tricky part is volume can provide conflicting messages for the same setup. Your ability to assess what volume is telling you in conjunction with price action can be a key factor in your ability to turn a profit in the market.
The volume represents all the recorded trades for a security during a specified period. This specified period can range from daily charts to 1-minute charts.
Most trading platforms, print each volume bar as either green or red. Green bars are printed if the stock closes up for a period and red bars indicate a stock closed lower for a given period.
This color-coding need not mean there was more down or up volume for the period; it just represents how the stock closed.
Volume cuts through all the noise in Level 2, by showing you where traders are actually placing their money.
The volume indicator to help us determine the market’s intentions across four common day trading setups:
1. Breakouts
2. Trending Stocks
3. Volume Spikes
4. False Breakouts
Trending Stocks - When a stock is moving higher in a stair-step approach, you will want to see volume increase on each successive high and decrease on each pullback. The underlying message is there is more positive volume as the stock is moving higher, thus confirming the health of the trend.
This sort of confirmation in the volume activity is usually a result of a stock in an impulsive phase of a trend.
The volume increase in the direction of the primary trend is something you will generally see as stocks progress throughout the day. You will see the strong move into the 10 am time frame, a consolidation period and then acceleration from noon until the close.
For this strategy, you will want to wait for the trade to develop in the morning and look to take a position after 11 am.
As the stock moves in your favor, you should continuously monitor the volume activity to see if the move is in jeopardy of reversing. The difficulty reveals itself in the increased number of false moves, which are commonplace in the afternoon.
Look for volume to push the stock in the direction of the primary trend
You need to be prepared to hold a stock for multiple hours to reap the real rewards
Once you figure out how to identify the stocks that will trend all day prior to 10 am, use volume as an indicator that keeps you in a winning position
Bullish Signs - Volume can be very useful in identifying bullish signs. For example, imagine volume increases on a price decline and then the price moves higher, followed by a move back lower. If the price on the move back lower stays higher than the previous low and volume is diminished on the second decline, then this is usually interpreted as a bullish sign.
Volume and Price Reversals - After a long price move higher or lower, if the price begins to range with little price movement and heavy volume, this often indicates a reversal.
Volume and Breakouts vs. False Breakouts - On the initial breakout from a range or other chart pattern, a rise in volume indicates strength in the move. Little change in volume or declining volume on a breakout indicates lack of interest and a higher probability for a false breakout.
No comments:
Post a Comment