Stocks & Volume Strength Analysis

Stock trade is tracked by volume. Volume can be used as an indicator for likely (short-term) future stock price trends, such as an uptrend in price that suddenly has low volume behind it. Not all volume movements indicate a price trend; some reflect reactionary panic or institutional trading.

Trade-Volume Relationship

When shares of stock exchange hands, it counts in a daily "volume" inventory. Volume tracks number of shares traded, not the number of people (or institutions) carrying out the trade.

Volume As Indicator

If stock trades in large amounts, it means there is desire to either buy shares or dump (sell) them. During a price uptrend, high volume indicates consistent demand, and likely maintained price increase.

Volume Precedes Price

Increased or decreased trading activity indicates interest or disinterest. This interest/disinterest in turn results in higher/lower prices. Looking at volume, it is possible to anticipate short-term price swings and profit from them accordingly.

Running Out Of Steam

When consistently higher prices previously backed by high volume keep increasing, they do so with much lower trading volume. This indicates an "overbought" stock that is likely to decrease in price.

Volume Spikes

A volume spike may be caused by investors reacting to shocking news or a decision made by a large trading institution.

References

• "Technical Analysis Of Stock Trends;" Robert D. Edwards and John Magee; 8th Edition
• Department of Computer Science, State University of New York (Stony Brook): Technical Analysis
• Investopedia: Price Patterns--Volume

Resources

• Incredible Charts: Chart Patterns---Volume Spikes and Dips