Turn up the Volume

Volume can be a very significant signal in market trading. Its the one thing the big fund managers and corporate traders wish they could hide.

A significant rise in volume can indicate determined buying in the market…or does it? Perhaps it is selling out.

This week we look at an example of Volume on a chart and then identify supporting evidence that shows the smart traders are exiting, selling their holdings to uneducated traders right at the top of the market.

Best wishes to all,

Alan Oliver.

2 Responses

  1. Hi Alan,
    Although many indicators on volume usually imply that great volume on price up is positive which means price running up is supported by volume, I have difficulty to understand it because as you said in the video, volume indicates how many shares change hands. Somebody buying and somebody selling at the same time.
    As volume spike usually occur on or before option expiry date, or when there is price gap, so how to interpret them?
    Or only those volume spike on non-option expiry dates and near market top/bottom are relevant for paying attention?

    1. Hi May,

      The thing to remember is that the stock market is traded by very experienced professionals. They spend lots of time and money to research markets, government policies, Interest rates, company profits, reports and so on …so they always make informed decisions.

      If they had 100,000 shares in a company to sell, every one cent gain in movement means additional $1000 profit. So they will list shares for sale, when the stock price gets close to their target they can move the sell price up to make more money. Why sell a stock for $5.20 if you can get $5.25 or another $5000 profit? So they will continually check the market and adjust their sell price subject to activity, supply and demand, number of buyers and market direction…

      Eventually they will decide that the price is not likely to head much higher and then they will actually sell. They may sell out because the price has stopped rising, or big parcels from other traders are starting to show up or they could be getting close to a major support or resistance level in the past….
      When you see big volume at a high price, the big volume is there simply because the pro traders are actually taking the offered prices. If they thought there was more to rise they would just adjust the sale price upwards, so by actually meeting the buyers they are indicating the price is very likely to not go much higher.

      Same on the buy side, when the market is falling they will move their buy price down to get the stock at the cheapest price. When the volume is big at the bottom it is because they have now agreed to buy at the sellers price. This is a sign that the pro traders think the bottom is somewhere very close.

      The options expiry is important because some traders will have to buy stock to meet their obligations. It is not necessarily a sign of a major high or low…same with Futures contracts and expiry dates.

      The difference is that options expiry/Futures rollover tends to be major spike on one day, whereas pro traders will buy or sell over a few days and try to hide what they are doing.

      Hope this helps,

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