INTRO 2 STOCKS

PART 3
 INTRO TO VOLUME

❖Traded volume is the number of quantity of stocks

which change hand. The volume is shown as a sub
graph in the price-time chart, below the price
window. Higher the volume in any move, the greater
is the conviction in that move to continue greater
distance in that direction. However, if volume is on
the lower side during a move, the stock is generally
bound to lose momentum.

❖An important point regarding volume is that traded

volume in absolute term has no significance. When
we talk about higher or lower volume, it is relative to
average volume over certain time periods.
 VOLUME TO PRICE ACTION

Price / Trend Volume Expectation

Increasing High Uptrend may go greater distance

Lack of conviction/ participation in uptrend.

Increasing Low
Likely to retrace.

Decreasing Low Less conviction in the down move, may reverse

Decreasing High Down move may cover greater distance

 ANALYZING MOMENTUM (MOM)

❑Momentum measures the rate of change in closing price over the past n periods. This
indicator is simple, yet effective when looking for trend reversals.

❑Technical analysis makes common use of applying trendlines to price charts. In fact, two of
the basic tenets of technical analysis are that ‘prices move in trends’ and ‘a trend is valid
until proven otherwise’.

❑So, is it valid to apply trendline analysis to momentum indicators? The answer is yes, but
there are important considerations you must take into account when analyzing momentum
trends. Momentum, like price, will move in trends. Yet when we see a price trend break, we
know that the market sees this occurrence as well, and the likelihood of a reversal trend is
high.