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Basic Volume Theory

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sriranga

sriranga
Co-Admin

Basic Volume theory includes the following maxims:
* Increasing Volume with an advance is Bullish
* Decreasing Volume with a decline is Bullish
* Increasing Volume with a decline is Bearish
* Decreasing Volume with an advance is Bearish
* A Market Top is imminent when heavy volumes occurs with little or No Gain in the averages.
* Heavy Volume confirms the direction of price breakouts from a Support or Resistance Zones.
* An increase on heavy volumes after a previous substantial rally signals a "Blow Off" with an impending to a Reversal approaching.
* Heavy Volumes accompanied by an accelrating drop in prices confirms a "Selling Climax" and impending price reversal after the panic selling subsides.
* Low volume periods after upward price reversals reflect a Consolidation Phase before resumption of the Upward Movement.

In the science of Technical Analysis, Volume plays a role which is as important as any other basic indicator. An increase in the volume in conjuction with Stock price moves adds strength and momentum in the direction of the move. It reflects the market's confidence that the uptrend will continue in force, or its pessimism that the downtrend will.

For the market, declining volumes as the market rises is supposed to warn the end of a BULL MARKET.
Likewise, sharp increase in volumes resulting in Selling Climax, signals the end of a BEAR MARKET.

An increase in abnormal volume can alert investors to coming price movements, Up or Down, before it becomes obvious to the overall market. Therefore, the market axiom "Volumes Precedes Price."

Historically, the majority of BULL MARKETS have originated with at least two days within two-month period where upside volume is atleast nine times greater than the downside volume. Investors who track volume and spot the two-day Exceptional Upside Indicator can out-maneuver other investors and earn excess returns by positioning themselves for the coming Bull Market.

The Daily Volume Indicator measures extremes in the Supply/ Demand relationship. If a Stock closes at the mid point of its trading range for the day, the indicato reflects no change. Closing Price above or below the trading range midpoint show an increase or decrease in the Daily Volume Indicator, respectively.

In constructing the Daily Volume Indicators, Technical Analysts take into account the day's volume, closing price, Distance between closing Price and the mid point, and the Trading Range.

These are just the basic characterstics of the Volumes, these must be read in conjuction with other commonly used indicators before drawing up any conclusion.

Source: Importance of Value in Technical Analysis - http://www.stocklinedirect.com

http://sharemarket-srilanka.blogspot.co.uk/
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amilaela

Post Thu Oct 13, 2011 2:58 pm by amilaela

elaaa

Slstock

Post Thu Oct 13, 2011 3:05 pm by Slstock


Fantastic. Thanks

Backstage

Post Thu Oct 13, 2011 5:55 pm by Backstage

Thanks

Kumar

Post Thu Jan 19, 2012 11:26 am by Kumar

Very good one.

K.Haputantri

Post Thu Jan 19, 2012 11:43 am by K.Haputantri

Thanks Sri.

CSE.SAS

Post Fri Jan 20, 2012 3:36 am by CSE.SAS

Thanks a lot.

rmark

Post Fri Jan 20, 2012 5:01 pm by rmark

Thank you for sharing a valuable article, I always make a point to read your posts.

cseguide

Post Fri Jan 20, 2012 6:16 pm by cseguide

Thanks for sharing

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