Volume Analysis

Your Step-by-Step Guide to Profitable

Trading with Volume Analysis
Table Of Contents
Introduction
Chapter 1 – What Is Volume Analysis?
Chapter 2 – A Closer Look at Volume Analysis
Chapter 3 – How Volume Relates to Market Movements
Chapter 4 – How Volume Relates to Exhaustion in the Market
Chapter 5 – Reversals and Breakouts
Chapter 6 – Volume Analysis Step-by-Step
Chapter 7 – Tips, Techniques and Common Pitfalls
Chapter 8 – Final Notes
Conclusion
Introduction
I want to thank you very much and congratulate you for downloading the
book, Volume Analysis–Your Step-by-Step Guide to Profitable Trading with
Volume Analysis.
In this book, you’ll learn step-by-step how to trade using volume analysis.
You learn what volume is, how it relates to market movements and
exhaustion in the market, and how to use it to identify trend reversals and
breakouts.
This book includes numerous candlestick chart diagrams and real-world
examples, so that by the end, you’ll have gained the knowledge you need to
get started trading with volume analysis.
Thanks again for downloading this book, I hope you enjoy it!
Legal
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Trading in any financial market involves substantial risk of loss and is not
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Trading is a challenging and potentially profitable opportunity for those who
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Chapter 1 – What Is Volume Analysis?

Before this question can be answered, first it’s important to explain exactly
what volume is. Volume refers to the number of trades of a stock or other
investment product over a specified period. If there were 1,600,000 buys of
Google and 1,400,000 sells of Google on a given day, then the volume of
trades of Google stock on that day would be 3,000,000. In other words,
volume is the number of buys and sells of a stock over a given period. It
therefore describes the interaction between buyers and sellers. This battle
between bulls and bears is represented on a chart as a histogram and can be a
great indicator as to where the market may head next.
Volume analysis is the practice of integrating your knowledge of volume into
your stock trading decisions. It is your ability to evaluate the changes and
trends in volume for a given security in order to determine whether you want
to make a buy or a sell decision. If you want to be a strong and successful
stock trader, then you need to take volume into account when you are doing
your analysis. Conducting high level volume analysis is not too difficult, but
there are certain principles that you will need to keep in mind when
conducting volume analysis. Let’s look at those principles now.

Chapter 2 – A Closer Look at Volume Analysis

When you are conducting volume analysis, there are a number of factors that
you always want to look for. Let’s evaluate those factors now. First is
Volume History. Volume should be evaluated relative to the recent history of
the stock. In other words, comparing the volume of Apple stock now to the
volume of Apple stock when it first started on the market won’t make sense,
because so many details have changed. When Apple was first launched, it
wasn’t as widely followed. But now, Apple is one of the most well known
publicly traded companies on the market. So while you wouldn’t want to
compare today’s volume with the volume at Apple’s inception, you might
want to compare today’s volume with the trading volume of Apple over the
last 6 months, 12 months, or 18 months.
Chapter 3 – How Volume Relates to Market
Movements
Typically, if the market is rising, then you should see a corresponding rise in
volume. In order for prices to continue to move up and stay up, there has to
be enough support in the market for continued buying. Thus, if you see a
rising market and high volume, then this is a classic example of a bull
market.
On the other hand, what happens when you see a rising market but low
volume? Under these circumstances, you might be noticing a lack of interest
in a prolonged stock rise from the market. As such, a rising market with low
volume should be an indicator of a potential reversal in the market.
For the same reason, a declining market with low volume may not be bad
news after all. It might signal a lack of motivation on the part of traders to
continue selling the stock. Therefore, a declining market with low volume
could indicate an eventual change towards a rising market in the near future.
Finally, if there is a declining market and high volume tied to that decline,
then this is a signal of a fundamental change in the market in the downward
direction. Perhaps news has been released that changes the public perception
of the stock. There are many reasons for high volume with a declining
market, but typically, it means that the stock may continue to fall.
Chapter 4 – How Volume Relates to Exhaustion in
the Market
How can you know when traders are getting tired of purchasing a certain
stock? How can you tell that the upwards trend is about to change? Volume
can be a very useful indicator in answering these questions. When you are
conducting your volume analysis, you should keep your eyes open for the
following pattern.
If there is a sharp move in price, either up or down, combined with a sharp
increase in volume, then this can indicate the potential end of a trend. For
example, perhaps you saw a long-term upward swing, but then there was a
dip. The next day, there was a much larger dip with heavy trading volume.
You could interpret this to mean that the stock’s upward swing has ended. In
other words, its upward trend has been “exhausted.” Now, it’s going to come
down as the market’s needs have changed.
Frequently, there are stragglers in the market who have been waiting to take
action and now are afraid that if they don’t get in now, they’ll never have a
shot to make money on this trade. These people may end up swapping stocks
with intelligent, long-term investors who are now cashing out at the sign of
volume exhaustion. These stragglers are generally the last buyers at the top
peak of the stock, and if there is high volume combined with large decline,
then it’s a sign the stock could fall over the longer term.
Chapter 5 – Reversals and Breakouts
Volume can be analyzed so as to determine if a stock or other security is
moving in a bullish direction. Let’s say a price is going down, then goes up,
and then goes down again. A pattern to look for would be a higher price the
second time the stock went down, as compared to the first. This pattern,
combined with lower-than-usual volume on the second decline, is actually an
indicator that the stock is set to rise. In other words, that there is a bullish
forecast for this particular stock.
Sometimes, you can look at volume to determine if a stock is about to
undergo a reversal. To be sure, a reversal is when a stock has been going up
for a long while, and now it is going to decline. Or vice versa. Imagine that a
stock has been falling for a long while. Perhaps four months. If you notice
that the price is stabilizing, with little movement and heavy volume, then this
can indicate a reversal in the direction of the stock. That heavy volume is
indicative of people deciding the stock is cheap enough to buy in, and that
can set a new floor for the stock. It can also demonstrate that there are more
buyers than sellers, as those who had the stock are holding on to it in hopes
that it rises again.
How can you tell whether a stock is ready to breakout or not? Well, volume
analysis can assist you in figuring that out. You will first want to notice a
range in which the stock is trading. If there is a spike in volume after that
range, and the stock had previously been rising, then that could be an
indication that the stock will rise further. On the other hand, if there is little
change in volume, or even declining volume after that range, then there is
likely lack of interest on the part of the broader market. Therefore, this could
be a false breakout. In other words, it looks like it will breakout, but then it
won’t.
Chapter 6 – Volume Analysis Step-by-Step
At this point, you should have a basic understanding of volume analysis,
along with some specific examples you can look for that can help you make
your investment decision with greater accuracy and understanding. Now, you
will have a step-by-step breakdown of exactly how to do volume analysis.
Step 1: Keep in mind that you should look for
shorter-term results.
Fundamental stock analysis is for those that want to hold a stock over a
period of years. On the other hand, if you’re conducting volume analysis,
then you might be looking to trader shorter-term. If you have that in mind,
then you will be able to leverage volume analysis in conjunction with your
broader short-term trading goals.
Step 2: Find the stock you want to analyze.

Now that you understand the basics of volume analysis, you should select the
stock you are interested in and might want to trade. Volume analysis is
typically done on a stock by stock basis.
Step 3: Look at your stock charts and study them.
Volume analysis is a type of analysis that you conduct by looking at stock
charts. Volume bars are typically found on the bottom of a stock chart. So get
used to volume analysis by looking at lots of stock charts and looking for
patterns similar to what has been described here, or other patterns that make
sense to you.
Step 4: Keep in mind the concepts of support and
resistance.
The concepts of support and resistance are very important in volume analysis.
Support is the lowest number a stock reaches before it starts to rise. And
resistance is the highest number it reaches before it starts to fall. You want to
look for patterns where the stock is in support mode, meaning riding the
bottom without going further down, or alternatively resistance mode, when
the stock has risen and is now flat lining. Based on your understanding of
volume analysis, you can look at the stock patterns and the volume pattern to
make a smart investment decision.
Step 5: Note the patterns.
Once you have identified the patterns, you can begin to formulate your
investment conclusions. Study your stock charts some more to be sure that
the patterns you noticed are real, because your mind might trick you into
seeing something that the data doesn’t agree with.
Step 6: Make the trade!
Now that you’ve made a decision that you believe the stock will rise or fall,
now you need to make the trade. You can do this trade with your brokerage,
either online or in person.
Chapter 7 – Tips, Techniques and Common Pitfalls
As always, you need to remember that past performance of a stock does not
necessarily equal future performance. In other words, while patterns in
volume can generally signal a price movement one way or another, these are
just guidelines, and not hard and fast rules. There will be moments when
these guidelines will be broken, and you need to remember that you are
making this trade in a chaotic and unpredictable environment. In this
environment, no one has perfect information, so people will be making
mistakes in their trades frequently.
You will want to find one or two patterns that you can rely on. It may make
sense for you to track some stocks over a certain period without actually
making the purchase to see if you would have been right. Once you gain
some confidence, then you can go ahead and start trading with real money.

Chapter 8 – Final Notes

Volume analysis is a very important part of analyzing a stock when you want
to predict its rise or fall. Some investors even go so far as to say that volume
is actually more important than the price of a stock in determining whether it
goes up or down. So take the information that you’ve learned in this article
and get to putting it into practice. No one is born a perfect trader. On the
other hand, with more practice and repetition, you will have the confidence to
make smarter decisions that you believe will be beneficial to your portfolio.
So start looking at your charts and remember that volume analysis can help
you make smarter investment decisions that can help increase the size of your
portfolio.
Conclusion

Thank you again for downloading this book!

You should now have the knowledge you need to get started trading using
volume analysis.
The next step is to take action!
Finally, if you enjoyed this book, please take the time to share your thoughts
and post a review on Amazon. It’d be greatly appreciated!
Thank you and good luck!

Bonus: Download the Free Trading Toolkit

Get instant access to free cheatsheets, workbooks and guides to help you
become a profitable trader or investor.
As a special thanks for downloading this book, we've put together a toolkit of
exclusive resources, including…
- Our exclusive ebook: How to Protect Your Trading Profits
- Downloadable cheatsheets for proven option trading strategies
- Our step-by-step guide for using a demo trading account to
maximize your profits
- Plus, brand-new ebooks, downloads, workbooks, cheatsheets,
videos and more each month
Click to Download the Free Trading Toolkit
or visit: www.zantrio.com/kindle