Price & Volume

Price & Volume

Price and volume are the two most important indicators in technical analysis. Every other technical indicator is derived directly or indirectly from these two indicators. If you are a trend follower, you want to invest in companies that demonstrated stable and smooth rises in their stock price. If you are a bottom fisher, you want to catch a reverse trend when a stock hit it鈥檚 support line or previous low.

The importance of Volume

Volume is important because if a stock rises with very low volume means it has low momentum. Few traders are interested in buying the stock at its current price so the rising trend may not last long. On the other hand, if a stock rises with strong volume, then the trend is healthy meaning there are a lot of interested buyers in this stock and there is good potential for the stock to go higher.

The following scenarios demonstrated the bulls and the bears when you are trading base on the price and volume indicators.

1. Rising Price + Rising Volume = Buying Signal 鈥?strong rising trend.

2. Rising Price + Declining Volume = Selling Signal 鈥?weak rising trend and the trend might reverse soon.

3. Declining Price + Rising Volume = Selling Signal 鈥?strong falling trend

4. Declining Price + Declining Volume = Buying Signal 鈥?weak falling trend and the trend might reverse soon.

The following shows the stock WNC rising with a healthy trend and keeps breaking new highs.