Power of volume in trading
technical analysts confirm a price reaction by looking at the volume of shares traded.Volume generally moves along with the price,and is indicative of the intensity of a price reaction. Study of volume also help in forcasting of reversal of trend.
Power of volume in price-volume relationships:
* A price rise that is accompanied by expanding volume in normal market tendency and therefore is not indicative of any potential trend reversal.
* A new high reached with a diminishing volume is a warning to a reversal in price trend.
* A rally which reaches a new high would also be accompanied by a volume that is higher than that obtained at the preceding peak. If volume obtained at new high are lower, a trend reversal is indicated.
*After a slow expansion over a period both price and volume work into an exponential rise. this is indicative of heavy off loading by bulls and is called a “speculative blow off ” and make the end of bull market. after this action price and volume both fall sharply.
* When the price recover after a bearish phase and subsequently react to level equal or slightly above the previous low, and volume reaction is lower than previous low, a bullish trend is indicated. actually lower volume is indication of weak trend .
* A reversal in trend indicated by a downside breakout from a price pattern,trendline,or moving average,with heavy volume is a confirmation sign of bearish trend.
* Termination of a bear market is often signalled by a selling climax.or diversion in volume in relation to price is indication of rise in price.
*An accumulation with high volume indicates to effort to push up price, and would sparks a bullish phase and distribution with high volume indicates bearish factors ,however accumulation and distribution with high volume is the onlly sign of consolidation of prevailing trends.