Daryl Guppy's Selected Newsletter Issue 36

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TREND VOLUME ANALYSIS 4

By Daryl Guppy

SUBJECT SUMMARY

TREND VOLUME

Trend volume analysis is based on the Free Float concept developed by Gann and applied in modern markets by Woods and Arp. Trend volume analysis differs in that it uses the actual cumulative volume traded between significant trend points as a means of verifying future trend turning points.

Major trend turns or continuation points in market trends occur when all the old shareholders have been replaced with new shareholders. When the entire available share register has been turned over then buyers must bid higher to get stock because the new shareholders are reluctant to sell at a loss. It is a useful tool for trading Initial Public Offerings.

The shares available for trading are different from the number of shares on issue. Of the shares on issue some may be locked up under escrow conditions. Others are held by major shareholders and are effectively not available for trading. If the top 10 shareholders own 60% of the shares on issue then effectively only 40% of shares are available for trading. This is the volume trend figure used for the analysis.

This technique is most useful in identifying bottom reversals and continuation patterns in up trends. Trend volume analysis is used as a guide as we cannot be certain that the shares which have changed hands all belong to just one group of old shareholders. It is used to verify other trend change analysis.

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Trend volume gives traders a way to identify when trend turning points may develop. Trends need volume to continue. Volume is the fuel of the market, but it is not inexhaustible. The fuel is loaded in defined quantities. When one quantity is used, it must be replaced. When one group or groups of people have purchased all the available shares, then trading will stop unless they are prepared to sell those shares to others, preferably at higher prices. The Find Trend Volume tool in GTE charting identifies the level of volume associated with trend behaviour between major trend peaks or trend pause points. This trend volume figure helps with a better understanding of accumulation, distribution and continuation accumulation distribution points.

Trend volume is not a stand alone tool. The analysis is enhanced...

 

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Martin Wong

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Investmatic Management, SoHo, Ara Damansara, Selangor DE, Petaling Jaya 47301, Malaysia You may unsubscribe or change your contact details at any time.