Price Confirmation Through Trade Volume

If you have gone on a few blogs and websites about trading in the stock market, you must have noticed a very strong focus on the price of stocks. Traders, while focusing too much on price, completely forget to consider the aspect of volume. However, they forget the importance of volume profile trading and how high volume trading strategies could actually help them make profit from their investments too. You could always predict the movement of the market of a particular stock by looking at the relation between the price and volume of it. Base your strategies on this and you will profit from your investments.

Increasing Volume And Decreasing Price 

One relationship between price and volume is when you notice an increase in the volume of a stock but its price is falling. This shows that the buyers are becoming more interested in buying this particular stock because of the falling prices. Due to the falling prices the sellers will sell their shares as soon as possible to avoid a position where they have to sell their stocks at bottom prices, which is of course a loss for them. In short, if you are not a day trader and your investments are “long” by nature, it is time for you to exit the market.

Decreasing Volume And Increasing Price

Your move in this kind of a situation is pretty predictable on most occasions. You notice that the volume of previously high volume futures is going down but the price is increasing. You can still wait to sell your shares since the price will often rise a bit more in this occasion unless a point is reached where the reversal will take place. The reversal takes place when the activity will be at its minimum due to high prices and little to no demands. The price is then expected to fall to develop interest in the buyers.

Decreasing Volume And Decreasing Price

One of the most important things about volume is that it tells you about the liquidity of a particular stock. Decreasing volume and decreasing price is pretty much of an indication that there is not much activity on this particular stock. The interest is lacking and thus no significant changes in the price or volume of the trade will take place. There is a way to predict the future change in this condition but it still uncertain enough to avoid investing in the stock.

The way to predict a change in future is by knowing why there is lack of interest and from whose side. If the buyers are not interested in buying a particular stock the price is bound to keep on going down. It’s up to you to decide your strategy based on that. However, if you were somehow able to find out that it’s the sellers who are not showing much interest in selling their shares, the price might start to move up since we can see that there are buyers in the market and the increasing demand will increase the price eventually.