See with price, predict with volume!
Volume, in its simplest form, is the number of shares or contracts that is bought and sold over a certain period.
When there is high volume, it means the market is more active and volatile. And so you’re bound to see movement in the share. And when there’s movement, there are buying and selling opportunities to bank profits.
But here’s the thing. 99.99% of traders have no idea how they can read volume correctly on price charts.
Why is this? Because trading volume analysis is an entire art in itself. It doesn’t require a lot of understanding, but it does require logic.
Let’s test your logic using T-Corp as an example
: If share prices and volume moves up, which direction is the share more likely to go?
T-Corp share price is more likely to head on up. Because there is a higher demand which means more buying.
: If prices are moving up and volume tends to drop, which direction is the share more likely to go?
Well, a drop in volume and an increase in price, means the share price is near exhaustion. And so you could expect downside to come from here.
Do you see what I mean when i say volume analysis requires a bit of logic?
Now I don’t always expect this to AWAYS be the case, as nothing is fail-proof in the stock markets.
But with a careful consideration of volume versus price, you’ll almost have a metaphorical third eye to see where momentum is more likely to go.
These are not the only indicators to look for with volume analysis
As I mentioned before, volume analysis is an art.
Those two scenarios, you can use starting today. But, I don’t want you to stop there.
There are scenarios where a share price jumps 5% in a day. What happens to the volume and how would you know how to use this for making future trading decisions?
Volume analysis can help.
What if there is thin volume over a number of months with little share price movement, but one day you get ultra-high volume on the share price?
Volume analysis can help you predict where the market will go.
I’m sure you now have questions conjured up into your conscious that you never had before. Well this is the beauty of trading. It is a world of profitable possibilities.
And to answer all the possible scenarios I’ve come up with for volume analysis, I've prepared a volume Spread Analysis slideshow to explain each scenario in more detail.
And if you have any questions, I’m always available at the InvestorsClub.co.za
Click here to claim your Volume Analysis trading strategy now!
“Wisdom yields Wealth”
Senior Editor: Trading Tips
: Red Hot Storm Trader
Author: 94 Top Trading Lessons of All Time
PS: watch our video on the end of the South African Rand!