Daryl Guppy's Selected Newsletter Issue 33

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Dear Readers

 

VOLUME 

By Daryl Guppy

SUBJECT SUMMARY

Volume is the fuel driving the market. It is usually shown as a histogram, with solid bars. Volume charts yield clues when volume is out of character. Unusually high, or unusually low. High volume on a lower close indicates selling pressure - people want to get out and nobody is eager to buy so the price falls. High volume on a higher close indicates buying pressure - people want to get in, but nobody will sell so they have to bid higher. Volume becomes erratic as the liquidity of the stock falls. Large blue chips have high liquidity - there are large scale trades every day. A small speculative stock has low liquidity - there are sometimes no trades for days on end. Volume significance depends on the normal liquidity of the stock.
 

 

 

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Volume is one of the most elusive concepts in technical analysis. In this series of articles we will show how volume is better understood and combined with other technical tools to provide a strategic analysis of trend movements, sustainability and change. We start with an overview of classic interpretations of volume and then move onto more modern combinations. It is important to understand the limitations of existing volume analysis before we can understand where new volume interpretations fit, and how they overcome some of the limitations imposed by existing volume analysis tools. The implementation of this analysis rests on new analysis tools.
 

We explore new analysis tools because the old analysis tools fail to give us a reasonable way to understand the relationship between trend and volume. Although some are very good at establishing the relationship between price and volume, this is not the same as understanding trend behaviour. This limits volume to a trading tool rather than an investment or trending tool. We start with the existing collection of volume tools.

 

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Martin Wong

Trading Coach

Investmatic Management, SoHo, Ara Damansara, Selangor DE, Petaling Jaya 47301, Malaysia


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