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Trading With Price And Volume - Understanding When You Need To Sell Or Spot A Brand New Trend
On any major stock market, from Wall Street to Bombay or even from London to Hong Kong, vast amounts of shares are traded each day that represents trillions of business capital that is exchanged back and forth.
This buying and selling action represents volume, which is the result of the exchange of stock or commodity among both buyer as well as seller. Volume, then, will be the prime mover within the price for a given stock or commodity in a given amount of time.
If there is more buying than selling for an ABC stock, then what results is the rise in cost for that stock. Also, if there's much more selling then buying in ABC stock then share price is likely to fall in value. This makes the study of volume a valuable indicator to determine if a stock is either in demand or prone to boost in share value in the future.
Quite a few ambitious stock traders practice a style of stock trading popularly referred to as "momentum investing". This is where one tries to identify stocks which are rising and falling in a given price range for a certain period of time and are likely to have explosive moves.
The confirmation for those explosive moves are taking long positions at the upper end of that price range or short positions at the lower end of that price range on greater than average volume.
The study of price and volume relationships also uncovers a condition called "climatic volume" which to a skilled investor can reveal a complete reversal in the given trend. After a stock has had strong advance or decline is where climatic volume can result.
Following an explosive move, usually the result of a volume spike, climatic volume results when investors come into the very last stages of that advance of decline and price shifts dramatically at the last move of its trend.
The study of the relationship between price and volume can give both technical and systemic traders the confirmation that they have to get in on explosive moves. In addition, it serves as signals as to when it is time to sell and possibly even spot a new trend in transition to exploit profitably.
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