Stock volume analysisI like to use volume as powerful confirming technical indicator. Why ? This is only one indicator which is not calculated from price! Strong volume during trading day indicates important market action .
These two situations are important for us. They tell us that new trend move is developing. You want to enter trade during these days. Entry price should be as close to such important S/R level as is possible. Watch situation on these two chart examples:
The MYGN chart above is nice example of breakout of resistance level with very high volume. Strong volume (approx five times more then average) allows stock to rise almost 4 points in one day (almost 10%) Next example:
Do you see as arrows point to important volume and when it happened ?
But you can find also above average volume in situation when trend is already running. After several strong moves you see that last day is accompanied by strong volume. This is warning sign. When I am in trade and see such situation on my real time chart, I like to do these 2 steps:
Strong volume after several trend days means that big players are trying to exit their positions to the hands of latecomers. My favorite trader Tony Oz calls them bagholders:-) They will buy also from us and allow us to realize nice profit. Watch this GS stock chart:
You can see extreme volume level at the end of strong decline. This is level where fear is big. And most professionals use such days to cover their short positions into hands of bagholders. ! My stock volume analysis tip: Use simple moving average to define average level of volume. Put this average line into your chart and then you will be able easy spot above average volume days. I use 20 days SMA on my stock charts. You can see it above. Return from Stock volume analysis to stock chart analysis
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