| Trading Volume - What Does It Mean And How To Use It? |
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| Written by Leyla Maker |
| Wednesday, 20 January 2010 20:03 |
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While most indicators are calculated from the price action, volume is the only indicator which is which does involve price action in its calculation.It indicates if a momentum or not is taking place . Because of its independence of price action, it has more weight in confirming signals during trading.
While most indicators are calculated from the price action, volume is the only indicator which is which does involve price action in its calculation.It indicates if a momentum or not is taking place . Because of its independence of price action, it has more weight in confirming signals during trading. The relationship between the number of goods sold and the number of goods bought holds true in any market, not just the stock market according to the theory of supply and demand. Just as shortage of goods will cause prices to rise, the shortage of a desired stock cause traders to desire it more and when those who control the stock demand higher prices and buyers are willing to pay that price, prices will rise. The prices in a stock market go up and down similar to the action of a bouncing ball. If more people want to buy a stock (demand) than people who want to sell it (supply), then the price moves up. Contrary to that, if more people wanted to sell a stock than buy it, prices move down (decrease) there would be greater supply than demand, and the price would fall. Decreasing demand fuels declining prices. Lower prices spur demand. As demand picks up, people begin buying again, fueling the need for greater supply. And the cycle goes back to the beginning, in a bouncing ball fashion. It is clear that Supply and Demand control human psychology which turns a complete cycle to affect supply and demand. The movement of stock price takes place between two levels known as Support and Resistance. Support and Resistance levels are crucial elements in stock technical analysis. Experienced traders usually use the two levels to trade stocks. A trader may take a long position buying the shares of the stock at the support level and selling it at the resistance level. By determining the support and resistance levels, a trade can determine the direction of the market and use the its volatility to execute successful trades. Newbies should consider gaining knowledge in the trading field from a reliable source and advancing in this knowledge so that they may succeed in the trading field. It is of great importance that you become trained in the signs that show the changes in market direction. If you spot that price and volume relationship is different from the dominating trend more frequent, you should be prepared for an upcoming change. It is not mandated that you have to monitor the market every single day, but it is essential that the prevailing trend of the market is monitored to notice any indication of an upcoming market direction reversal or a side-way trend is about to start. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Learn more about . Stop by Leyla Maker's site where you can find out all about how to trade stock online and what it can do for your successful trading. |