Section 2 - Chapter 10 - Volume Analysis.pdf
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Volume is a key indicator in technical analysis that measures the number of shares or contracts traded during a given period. It provides important context to price movements by showing the level of participation and liquidity in the market. Higher volume during a price move indicates that the move is more significant. Volume analysis attempts to reveal the relationship between price trends and corresponding volume to determine if the price action is confirmed or contradicted. By analyzing price and volume together, one can gain insights into future price movements.
Section 2 - Chapter 10 - Volume Analysis.pdf
- 1. Lecture - 21 Volume Confirmations CMT LEVEL - I
- 2. CMT LEVEL - I Learning Objectives Concept of Volume Concept of open interest Terms related to volume Volume provides information on liquidity and participation Describe how volume adds perspective to price action
- 3. What is Volume? • Volume is the number of shares or contracts traded in a security or an entire market during a given period of time. • For every buyer, there is a seller, and each transaction contributes to the count of total volume. • Volume is an important indicator in technical analysis as it is used to measure the relative worth of a market move. • If the markets make a strong price movement, then the strength of that movement depends on the volume for that period. • The higher the volume during the price move, the more significant the move.
- 4. Volume Terminology Trading Volume Total Volume Total Trades Tick Volume Open Interest Upside Volume Downside Volume Index Volume Dollar Volume Float Avg. / Typical Volume
- 5. Role of Volume in Market Analysis •Benjamin Graham, the father of value investing and a mentor to Warren Buffett, often called the market a "voting machine & volume is the ballot box. • Volume is illustration of the forces of supply and demand. • Volume is best understood :- - The validation of price and its cause - The source of liquidity - The substantiation of information - The fulfillment of convictions
- 6. Role of Volume in Market Analysis • Volume data is informational in this setting because prices alone do not fully reveal the magnitude of the private signals and their precision." • Volume analysis attempts to expose the relationship between price trends and the corresponding volume information • By analyzing price and volume together, one can determine if the price-volume relationship confirms the price action or contradicts it, thereby giving notice of future price movements.
- 7. Volume Liberates Liquidity • "Volume is the trust and most reliable indicator of the market's ability to facilitate a trade. • A market that is not facilitating trade will not survive long. • If volume is low, the odds of quickly selling a large block at a good price are not very high at all. • The more people participating in the price movement, the more the price movement is validated. For technical traders, volume dictates the "quality" of the price.
- 8. Volume Substantiates Information • Volume validates price, but it also contributes to forming price. • As new information is disseminated to the public, volume reveals the flow of this information. • In this way, volume substantiates the importance of the new information. •As volume rises, it equates to more emphasis being placed upon new information by investors.
- 9. Volume Reveals Conviction •The volume of shares traded often reveals the market's true conviction • You would expect a wealthy investor to buy a far larger quantity if he or she was truly acting with conviction.
- 10. Volume Reveals Conviction • Volume Expresses Interest and Enthusiasm - Rising volume reveals greater interest and enthusiasm, whether on the buying or selling side of a market. - Falling volume shows that fewer investors see a need to participate, so they stay on the sidelines. • Volume Denotes the Disparity of Opinions - The greater the disparity of opinion, the greater return each side expects to realize from an investment. - A wide divergence in those beliefs shows up as higher volume as the bulls and bears take
- 11. Volume Reveals Conviction • Volume Is the Fuel of the Market - The fuel of the market is provided by new supply (shares or contracts for sale) and demand (shares or contracts wanted for purchase). Volume is a measure of the total supply and demand being produced by market participants who have agreed on price. •Volume Exposes the Truth If price is truth, then volume keeps prices honest. A significant increase in volume is a clear sign that a big institution is at the table, particularly if price movement is subdued. •Volume Gives rise to Velocity Market volume is a quantity that, when increased, tends to produce an acceleration of price direction.