Price & Volume are considered king of chart analysis 👑
Why? Because all indicators get constructed by combining them
Let understand:
🔸What is volume
🔸How it confirms trends
🔸Relation to liquidity
🔸Relation with breakouts
A thread🧵👇#TechnicalTuesday #LearnWithICICIDirect
Why? Because all indicators get constructed by combining them
Let understand:
🔸What is volume
🔸How it confirms trends
🔸Relation to liquidity
🔸Relation with breakouts
A thread🧵👇#TechnicalTuesday #LearnWithICICIDirect
[1] What is Volume?
Volume refers to the number of shares or contracts traded in a given period of time.
Ex: A stock had 5 trades in a day
1. 10sh @₹500/sh🔼
2. 5sh @₹490/sh🔽
3. 20sh @₹550/sh🔼
4. 15sh @₹500/sh🔽
5. 30sh @₹510/sh🔼
Total volume for the day - 80 shares
Volume refers to the number of shares or contracts traded in a given period of time.
Ex: A stock had 5 trades in a day
1. 10sh @₹500/sh🔼
2. 5sh @₹490/sh🔽
3. 20sh @₹550/sh🔼
4. 15sh @₹500/sh🔽
5. 30sh @₹510/sh🔼
Total volume for the day - 80 shares
[2] Trend Confirmation
👉An increase in trading vol. can often be associated with an increase in buying/selling pressure
👉This, in turn, leads to a corresponding increase in the price of a stock
👉If a comp. reports expected < earnings, it may attract a higher trading volume
👉An increase in trading vol. can often be associated with an increase in buying/selling pressure
👉This, in turn, leads to a corresponding increase in the price of a stock
👉If a comp. reports expected < earnings, it may attract a higher trading volume
[3] Example of Trend Confirmation
Look at the daily price and vol. movements of a particular stock over a period of 9 days in the image below
Contd.👇
Look at the daily price and vol. movements of a particular stock over a period of 9 days in the image below
Contd.👇
![[3] Example of Trend Confirmation
Look at the daily price and vol. movements of a particular stock...](https://pbs.twimg.com/media/FvsKfwRaUAEMy6N.png)
👉An increase in trading vol. can be associated with an increase in buying or selling pressure
👉Which can lead to a corresponding increase in price of a stock
👉It's important to note, however, that there is no guaranteed relationship between trading volume and stock price
👉Which can lead to a corresponding increase in price of a stock
👉It's important to note, however, that there is no guaranteed relationship between trading volume and stock price
[4] Liquidity Indicator
👉Volume is a crucial indicator of liquidity in any market, including stock market
👉When mkt has high trading volume, it generally indicates a high level of liquidity & better price discovery
👉Whereas, a market with low trading volume may be illiquid
👉Volume is a crucial indicator of liquidity in any market, including stock market
👉When mkt has high trading volume, it generally indicates a high level of liquidity & better price discovery
👉Whereas, a market with low trading volume may be illiquid
[5] Breakout Indicator
Vol. is a critical indicator for traders looking to identify potential breakouts in the stock market
🔸Helps to confirm the strength and validity of the breakout
🔸Helps identify potential false breakouts
🔸Helps traders identify probable breakouts
Vol. is a critical indicator for traders looking to identify potential breakouts in the stock market
🔸Helps to confirm the strength and validity of the breakout
🔸Helps identify potential false breakouts
🔸Helps traders identify probable breakouts
![[5] Breakout Indicator
Vol. is a critical indicator for traders looking to identify potential break...](https://pbs.twimg.com/media/FvsKuqTaYAEl9AB.jpg)
[6] Volume Spikes and Breakout
Vol. spikes and breakouts are related concepts in technical analysis
Vol. spikes can occur for a variety of reasons, such as:
👉News events
👉Earnings releases
👉Changes in market sentiment
Vol. spikes help readers identify breakouts & reversals
Vol. spikes and breakouts are related concepts in technical analysis
Vol. spikes can occur for a variety of reasons, such as:
👉News events
👉Earnings releases
👉Changes in market sentiment
Vol. spikes help readers identify breakouts & reversals
[7] Example of Vol. Spikes
A number of volume spikes appear in the below chart
1 Occurs at the start of the symmetrical
2 Occurs on a breakaway gap from the earlier symmetrical formation
3 Into a consolidation that forms a descending wedge
4 Signals Trend Reversal
👇
A number of volume spikes appear in the below chart
1 Occurs at the start of the symmetrical
2 Occurs on a breakaway gap from the earlier symmetrical formation
3 Into a consolidation that forms a descending wedge
4 Signals Trend Reversal
👇
![[7] Example of Vol. Spikes
A number of volume spikes appear in the below chart
1 Occurs at the sta...](https://pbs.twimg.com/media/FvsLGHcagAIF9ka.jpg)
The 4th vol. peak is interesting
👉Occurs after the breakout there was low volume
👉Thomas Bulkowski’s who is widely known for his research and analysis of chart patterns and technical trading strategies observed this👇
👉Volume does not necessarily occur on a breakout
👉Occurs after the breakout there was low volume
👉Thomas Bulkowski’s who is widely known for his research and analysis of chart patterns and technical trading strategies observed this👇
👉Volume does not necessarily occur on a breakout
[8] Key Takeaways
Some general rules that date back to the work of H. M. Gartley in 1935
🔸When prices are rising:
👉Vol. increasing is impressive
👉Vol. decreasing is questionable
🔸When prices are declining:
👉Vol. increasing is impressive
👉Vol. decreasing is questionable
Some general rules that date back to the work of H. M. Gartley in 1935
🔸When prices are rising:
👉Vol. increasing is impressive
👉Vol. decreasing is questionable
🔸When prices are declining:
👉Vol. increasing is impressive
👉Vol. decreasing is questionable
🔸 When a price advance halts with high vol., it is potentially a top.
🔸When a price decline halts with high vol., it is potentially a bottom
Higher volume is usually necessary in advance because it demonstrates active and aggressive interest in owning the stock
🔸When a price decline halts with high vol., it is potentially a bottom
Higher volume is usually necessary in advance because it demonstrates active and aggressive interest in owning the stock
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Check our detailed article on "Importance of Volume"-
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TL;DR
[1] What is Volume?
[2] Trend Confirmation
[3] Example of Trend Confirmation
[4] Liquidity Indicator
[5] Breakout Indicator
[6] Volume Spikes and Breakout
[7] Example of Vol. Spikes
[8] Key Takeaways
[1] What is Volume?
[2] Trend Confirmation
[3] Example of Trend Confirmation
[4] Liquidity Indicator
[5] Breakout Indicator
[6] Volume Spikes and Breakout
[7] Example of Vol. Spikes
[8] Key Takeaways
Disclaimer: Investments in securities markets are subject to market risks. Please read all related documents carefully.
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Full disclaimer here: bit.ly
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