Using volume to improve your trading

How to utilize volume in improving trading

In case you happen to be utilizing the use of brokers with ZAR account, then you might be able to use volume to improve your trading. The trading volume refers to the measure of the amount given by the financial assets which have traded in a certain period. When it comes to stocks, the volume is measured in the shares which have been traded and when it comes to options and futures, it is normally based on the number of contracts that happen to change hands. The numbers plus the indicators which use the volume data are often provided with the charts online.

When you observe the patterns of volume with time, it might help you to get the sense of the conviction and strength behind the declines and advances in certain stocks and the various markets. The same happens to be true for the traders in options as the trading volume is known to be an indicator of the current interest of the option. What it means is that the volume is known to play a very important role when it comes to the features and the technical analysis prominently among some of the technical indicators which are key.

Basic guidelines in using volumes

When analyzing volume, there are normal guidelines that are used in determining the weakness of a certain move. As a trader, you will be more inclined in joining strong moves and taking no part in the moves that show weakness – or you might even watch for an entry in the direction which is opposite of a move that is weak. The below guidelines will not hold true always, but they will be able to offer guidance that is general for trading decisions.

Trend confirmation

A market that is rising should be able to see volumes that are rising. Buyers normally need numbers that are increased as well as an increase in enthusiasm to be able to continue to push the prices higher.  A price that is increased and volume that is decreased might suggest that there is a lack of interest which should serve as a warning of an impending reversal. It can be hard to be able to wrap it in your mind, but it is simply a rise or a drop in price on a little volume which is not a signal that is strong.  A price rise or drop on a larger volume is a signal which is stronger that something in the stock has changed fundamentally.

Exhaustion volume and moves

In the fall or rise of the market, you will come across exhaustion moves. They are normal moves that are sharp in the price which combines with an increase in volume that is very sharp, signaling that there is a potential end of a particular trend. Those who participate and waited, afraid of being able to miss more on the pile of the move in a market tops, end up exhausting the numbers of the buyers.

At the bottom of the market, the price fall eventually forcing out a large number of the traders, resulting in increased and volatility volume, seeing a decrease in volume after the spike happens in the situations, but the way the volumes goes on to play out over coming days, weeks or even months, can be analyzed by use of the other guidelines.

The bullish signs

The volume can be utilized in identifying any signs of bullish. An example is that you start to imagine volumes increasing on a price that is declined and then the price goes higher followed by a lower move again. If the price that happens on the move back lower does not end up falling below the low previously, the volume then gets diminished on the current decline, then it is interpreted as being a bullish sign.

Price and volume reversals

After having a move in price that is long for the lower or higher prices, if the price starts to range with price movement that is low and a heavy volume, it might be an indication that a reversal is going to happen and the prices are going to change in that direction.

The false breakouts vs the volume and breakouts

On the first breakout from a certain rang or another pattern chart, a volume rise is an indication of strength in that particular move. A little change in volume or a volume that is declining on a breakout indicating an interesting lack and the probability that is higher for a breakout which is false.

Volume history

The volume needs to be looked at relative to history recently. Comparing the volume currently to the volume that happened five decades ago might be able to provide data that is irrelevant. The data sets which are recent, the more relevant they are going to be.

Volume is normally viewed as a liquidity indicator, as the stocks or the markets with the major volumes being the most liquidated and considered the best for the trading in the short term there are various sellers and buyers ready to trade at different prices.

Three volumes indicators

The indicators of volume are formulas that are mathematically inclined, which are visually represented in the most commonly utilized in charting platforms. Each of the indicators utilizes uses a formula that is slightly different and traders should find out the indicator which works best for a certain market approach.

Indicators aren’t needed, but they can aid in the process of the trading decision. There are many volume indicators in choosing from and the following provides a sampling of the many of them to be used.

  • OBV – on balance volume
  • Chaikin money flow

When the closing price is in the upper portion of the range of the day and the volume continues to expand, the values will move higher. When closing the prices tend to be in the portion of the range that is lower, values will tend to be negative. The Chaikin money flow might be utilized as an indicator in the short term as it oscillates but it tends to be used commonly for seeing the divergences.