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Importance & Implications of Volume

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RichKid

PlanYourTrade > TradeYourPlan
Joined
18 June 2004
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Is there anyone who uses volume as THE crucial element when looking at trends (for example: classically, ascending triangle patterns have falling volumes and then a spike in volume when the price breaks through the resistance level- can be similar for symmetrical triangles).

I was looking through the marketmad (tipsheet) sales pitch and the guy there stresses the importance of volume as being the key. Also, heard that HM Gartley was a pioneer in volume work (see book list at www.ataa.com.au)- anyone read his books?

Any views? Do you think volume is not given enough attention when we get carried away with prices alone? With tightly held stocks, for eg, it's sometimes hard to use volumes accurately to confirm trends.

RichKid
 
Re: TA- Importance of Volume

Okay, just to give an idea of what I'm talking about:

High volume with a rising share price= strong buy
High volume with a falling share price= strong sell

Hence, if there is a dramatic fall in price but only on low volume it may not be worth getting too worried as it could be temporary.

These are just general trend/volume relationships but they can make a difference if you look out for it. Often helps to confirm price trends rather than anyting else IMO. (also remember to note the issue of new shares/exercise of options, buy-backs etc as these would skew normal volume trends).

RichKid
 
Re: TA- Importance of Volume

Hi Richkid,

i like looking at the volume, for confirmation... on a technical indicator.. just gives more confirmation, though... on speculative stock.. its hard to pick... volume can strike hard, but the technical indicators, are normally showing over bought... and quick fast movements of the stock price, but honestly for speculative stock, i find volume as one of the best indicators for the day too see, how fast the stock will move up... and idea of what the profit target in price could be...

Cheers,
sis
 
Re: TA- Importance of Volume

Hi sis,

Great to hear your views, sometimes I find that price momentum indicators can conflict with the price trend/volume confirmation (ie if the stock is breaking out of a range and starting a strong uptrend on high volume).
In such case I see what else I know about the stock (ie some fundamental news such as a new discovery) but I follow the trend once it's evident.

Interesting what you mentioned about speculative stocks. With low priced penny shares it's sometimes dangerous to go on volume alone. Say if a share goes from 1 cent to 2 cents the value of the share has doubled even though the move is only 1 cent difference. Hence 50k of volume at 1c ($500 value) is not to be regarded as the same as 50k at 2c ($1000). It may appear things are steady but really people are putting in twice as much $$ so it may be best to check money flow indicators in this situation where there are dramatic changed in price for penny stocks.

That is just one of the few instance when I don't look at volume but rather at the money coming in to a stock. But then again if the penny stock is highly liquid and there are solid volume trends I'd keep that in mind.

RichKid
 
Re: TA- Importance of Volume

I do use volume every now and then, but I alway forget using it. I just too focus on support, resistance and trend lines.

Maybe I just have to remind myself to use volume in the future.
 
Re: TA- Importance of Volume

I don't use volume at all!

...except to see if an instrument has sufficient liquidity.

My logic is that if 90% of traders lose, then I don't wan't to know what 90% of traders are doing. In fact I want to be in a position BEFORE the rest of the world (with appropriate stops of course).

Cheers
 
Re: TA- Importance of Volume


Very interesting, I have to admit that a lot of the time the volume doesn't seem to suggest anything to me but there are some classic patterns (eg H&S, ascending triangle, symmetrical triangle) but again it's just something to look at and I always keep an eye on it. Some stocks are said to 'revive' when volumes get back to 'normal' so this can indicate a potential change in trend for eg. An example of when the classic pattern doesn't work is AZR, a stock I am watching expecting a possible reversal but it has consolidated instead (see separate thread on it with a graph). Fundamentals helped me confirm why it didn't go south.

The other issue is that although you may not use volume directly it may appear indirectly through other indicators or methods, just a guess here!

Liquidity is certainly one areas where it really helps, especially with derivatives and smaller stocks (No point getting in if you can't get out in time or at the right price (spread).)
 
Re: TA- Importance of Volume

Thought I'd better add something:

I trade very liquid instruments; the largest and most volatile stocks on the US stock exchanges plus commodities (gold, oil, grains etc)

If I were trading spec stocks, I would be very concerned about volume. It is one thing you can scan shortly after market open via a dynamic market map. This will give you some excellent candidates for the days trading.

Thats how I used to trade...er....but position size is too big now
 
Re: TA- Importance of Volume

wayneL said:
Volume... It is one thing you can scan shortly after market open via a dynamic market map. This will give you some excellent candidates for the days trading.

Thats how I used to trade...er....but position size is too big now
Click to expand...


Sounds like you're in the big league Wayne! If you're into futures fatprophets.com.au has a free futures email via their fatfraternity link, but you probably don't need tips if you have your own system.

BTW, what's that dynamic market map you mentioned? Being a newbie I haven't heard of it before. Sounds interesting.
 
Re: TA- Importance of Volume

Rich,

It's an up to the minute graphical representation of price movement and volume (see below)

This one (which is not a very good one)is from Sanfords who I still have an account with but the best one is available on the webiress platform (etrade pro, aotonline, etc)

Cheers
 
Re: TA- Importance of Volume

Looks weird (not as attractive as your price charts!) but it's something I'll have to look into. I don't use that site so I'll have to see where I can find it. THanks Wayne for pointing it out to me, so much to learn!
 
Re: TA- Importance of Volume

We are discussing how volume is important for confirmation of a price trend. Well here are two instances of patterns where volume is more important for confirmation than it ordinarily is. ie volume is very important:

Rounding bottom/saucer bottom/bowl for DES:
https://www.aussiestockforums.com/forums/showthread.php?t=578

A triangle breakout (symmetrical) for FGL
https://www.aussiestockforums.com/forums/showthread.php?t=582
(volume increased a few weeks before it should have to be a perfect match to the price but it's close enough).

More generally:

A pennant setups and triangle breakouts for HDR corresponding to volume, see price action during middle of this year:
https://www.aussiestockforums.com/forums/showthread.php?t=427&page=1&pp=10

Here's an instance of where volume confirms the trend but it hasn't completed the reversal pattern (Head and shoulders- failed to pierce the neckline, consolidated instead for AZR):
https://www.aussiestockforums.com/forums/showthread.php?t=460


Those are just stocks that I'm following (or that others have posted on) so I'm familiar with the patterns but there are bound to be more in these forums.
(PS these are links to the threads with charts, you may have to have a quick hunt to find the post with the chart- be sure to be logged on to see it)
 
Implications of Volume

What are the implications of trading volume and how can it be used to predict breakouts/movement in share price? I often hear high volumes referenced in terms to breakouts- so it is generally considered a good thing? Or is it only when high volumes occur in tandem when the SP approaches resistance levels that breakouts occur?
 
Re: Implications of Volume

There are the obvious breakout moves supported by increasing volume both to the up and downside.

But also watch for volume blow offs when price has a final run at a new high for example or on the positive side a dramatic one day fall on heavy volume creating a new spike low.
Of ten in these cases there are good opportunities as the last of buyers/or sellers leave the bidding.
 
Re: Implications of Volume

Volume can be one of the worst things to use. You need to check the volume details as often it can be grossly inflated by special one off events that have nothing to do with traded volumes. It can also be inflated by manipulation by someone just buying and selling repeatedly.
I use it but it has a very minor role in my trading decisions. If the volume spikes a lotfrom the normal then I totally exclude it from decisions unless I can find why it spiked so much and adjust it back to that from normal trading.
 
Re: TA- Importance of Volume

RichKid said:
Looks weird (not as attractive as your price charts!) but it's something I'll have to look into. I don't use that site so I'll have to see where I can find it. THanks Wayne for pointing it out to me, so much to learn!
Click to expand...

WebIress via www.morrisonsecurities.com.au has that market map used by Wayne on its platform, found it thanks to Sails.

I like to look at volume to ID accumulation/distribution- but it has to be combined with price, it's just confirmation most of the time imo rather than being the primary source of a decision.

Admin Note: I've combined an old thread on volume with this current one.
 
I probably use dynamic market depth for quick directional trades because I like to be in just as the price is building up momentum for a move. Works for me.

Cheers
Happytrader
 
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