Using price and volume to find market trends.

Hi there,

In this post i’m going to talk about two vital pieces of information that you have to keep a close watch. They are ‘price’ and ‘volume’. Both these figures are important and it gives a quick idea about the direction of the stock price.

WHAT DOES IT TELL?

  • Volume – tells you whether there are buyers or sellers for this stock in the market.
  • Price – tells you which direction.

RELATION BETWEEN PRICE AND VOLUME.

If the number of shares traded is high and the prices are also moving higher- that’s a positive signal. You are probably looking at a large group of people investing heavily in that stock. On the other hand, If the number of shares traded is high and the prices are coming down – that’s something to be careful about. You are probably looking at investors backing out from that stock.

Several combinations of price and volumes are possible. Let’s look at the most common scenarios:

  • A price advance with steady increasing volume

This indicates continuing upward momentum. As the price is climbing, more and more buyers are getting attracted until the stock gets into a stage of euphoria that usually indicates the end of the price advance.

  • A slowing pace of buying with decreasing volume

Slow pace in buying also means that there are not many sellers for the stock, which is a good sign. It also indicates that the price is almost at it’s peek and a further up move is unlikely immediately. Since the sellers are in short, the stock might move higher after a pause.

  • A relatively big volume increase during the price advance with lower volume on the pullback.

This indicates a continuing uptrend. The lower volume during the pullback indicates that there are not enough sellers in the market to drive the stock down.

  • Big buying volume without the price going higher

This indicates distribution, which means resistance. A big seller is likely in the market. There is no way to tell yet if the buyers will win this battle and are able to drive the price higher, or if they will give up and the stock eventually reverses.

  • A slow and steady movement upward with consistent volume

This indicates continuing upward momentum. There might be a buyer in the market who is steadily buying shares while trying to not attract too much attention.

CONCLUSION

Tracking on price and volume for a few days will give you an idea about general direction of the market and with some expertise, you can spot the warning signs that a change in direction/trend is coming.

That’s about price and volumes

Bye for now ..

..have a nice day !!

You may like these posts:

  1. Importance of Volume in Technical Analysis
  2. Theory of Price Gaps
  3. Continuing patterns 3 : Cup with handle

3 Responses to “Using price and volume to find market trends.”

Srini

April 19, 2012 at 4:15 am

How can I scan for the stocks with high volume. please help.

J Victor

April 20, 2012 at 12:54 pm

Hi srini

daily volumes are reported on the NSe and BSE sites

it’s also available on sites like moneycontrol.com

check this link of NSE. you get all the data here http://www.nseindia.com/content/equities/eq_scriphistdata.htm

Dutta

April 13, 2018 at 5:09 pm

Great analysis Jins! Interestingly you have dealt with the case when prices are going upwards or staying stagnant. How strongly do you feel the opposite of these axioms when the price goes down. To give an example, would you say that a price *decline* with steadily increasing volume is a precursor to panic amongst the shareholders? How do the rest of your axioms react to such a condition?

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