(reading time 4 minutes)
Volume is the number of shares of stock, bonds, options, or futures con tracts traded over a designated period (e.g., daily, weekly, monthly).
+ Advancing volume is the total volume for all stocks increasing in price; declining volume is the total for all stocks decreasing in price.
+ Volume reflects the intensity (strength) of a stock, commodity or index. Volume also provides an indication of the quality of a price trend and the liquidity of a security or commodity.
πΆ What volume reveals about the market's strength? πΆ
1) High volume means greater reliance can be placed on the movement in price than if there was low volume, because heavy volume is the relative consensus of a large number of participants.
2) High volume indicates an active market; in an active market, the spread between bid and asked prices is usually narrower.
3) High volume is often characteristic of the initial stage in a new trend, such as a breakout in a trading range. Before a market bottom, investor nervousness leads to panic selling, a characteristic of which is high volume.
4) High volume is also attributable to a market top when strong buyer interest exists.
5) Low volume often exists during an unsettled period, such as at a market bottom.
6) Low volume reflects a lack of confidence that is usually indicative of a consolidation period when prices are within a sideways trading range.
7) A sizable increase in volume may point to a breakout (start) or climax (culmination) of a move, which may be temporary or final. In a rare case, it may represent a shakeout.
8) Volume typically follows a trend, expanding on rallies and decreasing on reactions. Volume is useful in ascertaining how strong a change in expectations really is.
π―The following guidelines apply to the study of volume: π―
+ The market is bullish if a new high occurs with heavy volume. A new high on light volume is deemed temporary.
+ A new low price with high volume is a bearish indicator. A new low on light volume is less significant.
+ A rally to a new price high on expanding volume but with less activity than the previous rally is questionable. It may point to a coming reversal in trend.
+ A rally on contracting volume is questionable. It warns of a possible price reversal.
+ If prices advance after a long decline and then go to a level at or above the previous trough, the indicator is bullish when volume on the secondary trough is less than the first.
+ If the market has been increasing for a while, an anemic price increase coupled with high volume is a bearish sign. After a decline, substantial volume with minor price changes points to accumulation, typically a bullish indicator.
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