redips: Jun 19, 2008

I wonder if you have realized this...

All the data you get daily from the stock exchange in financial technical analysis charts are nothing more than:

1. Price
2. Volume

That's right. Only the price and the number of transactions are known daily and captured as charts for financial technical analysis. Even though volume is such an important element, very few technical traders make full use of it in helping them with their trade entries and exit. This is because most technical traders simply do not know how to make sense of the daily volume bars in relation to the price action. I present here a simple chart explaining what the price versus volume behavior stand for and hope it helps you in making more sense in your financial technical analysis.

Financial Technical Analysis Using Volume Defined

Rising Price + Rising Volume = Healthy Bull trend

Rising Price + Declinging volume = Bull trend drying up, hitting ceiling soon

Declining Price + Rising Volume = Healthy Bear Trend

Declining Price + Declining Volume = Bear tredn drying up, bottoming soon.

Declining Price + Sudden Volume surge = Selling Climax, short term support level reached

Price at Peak + Sudden volume surge = Buying Climax, resistance level reached

Financial Technical Analysis of Head & Shoulder Formation Using Volume

The volume pattern for a head and shoulders top formation is very distinctive. On the left shoulder volume reaches a peak. As prices move up to the head, volume increases, but this second volume peak should be lower than that of the left shoulder. This higher peak in price, yet lower peak in volume, is an important signal to the trader that buying interest is far less ardent. Finally, as prices rally and form the right shoulder, volume further diminishes.

Financial Technical Analysis Using Volume, Conclusion

I hope this simple explanation of what each movement of price versus volume means in financial technical analysis can help you, as a technical trader, attain a higher level of accuracy when reading your charts and therefore a higher level of trading consistency.

Read More About How To Use Technical Analysis Systematically

Jason Ng is the Founder and Chief Option Strategist of Masters 'O' Equity Asset Management (http://www.MastersoEquity.com) He is a fund manager specialising in options trading and his Star Trading System has helped thousands. For Free Option Trading Knowledge, please visit http://www.OptionTradingPedia.com

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Thursday, June 19, 2008

Financial Technical Analysis Using Volume