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Price Action And Trading Volume
What is the role of the price-action?
What is the purpose of the trading volume?
What is comparable to both the price-action and trading volume?
How to use price-action and trading volume?
Those are the essential questions I will be answering in this article today. Let's jump into it right away.
What is the purpose of the trading volume?
What is comparable to both the price-action and trading volume?
How to use price-action and trading volume?
Those are the essential questions I will be answering in this article today. Let's jump into it right away.
Role Of The Price-action
The role of the price-action is to reveal where is the current closing price, what has happened before and where it is likely to be headed.
As I have said many times before, the price-action does not hide anything, it reveals all (past, present, future) about the asset one is trading. It is in fact a data bank of the movement the price throughout its existence.
Call it a data collector from the day of the IPO until now. Nothing can escape it because as soon the markets open it begins to collect everything. That is amazing.
Apart from that role, the price-action also sends messages that one must interpret and understand. For example one spots a low then a lower high followed by a higher low. It is an encrypted message (a code) and it indicates a reversal. Think of candlestick patterns, those are messages.
Alright. That is why I say to traders that the price is the number one indicator.
As I have said many times before, the price-action does not hide anything, it reveals all (past, present, future) about the asset one is trading. It is in fact a data bank of the movement the price throughout its existence.
Call it a data collector from the day of the IPO until now. Nothing can escape it because as soon the markets open it begins to collect everything. That is amazing.
Apart from that role, the price-action also sends messages that one must interpret and understand. For example one spots a low then a lower high followed by a higher low. It is an encrypted message (a code) and it indicates a reversal. Think of candlestick patterns, those are messages.
Alright. That is why I say to traders that the price is the number one indicator.
Role Of Trading Volume
The trading volume reveals how market participants are buying and selling the asset by adding the number of shares bought and sold at the end of each day, week, month and year.
It reveals exactly how buyers and sellers are trading the financial instrument. If there were 500000 shares sold and 2000000 shares bought in one day then the daily trading volume is 2500000.
Then it will add each daily trading volume to calculate weekly or monthly trading volume. Therefore, the trading volume reveals how much interest there is to buy and sell the asset.
Is it liquid or illiquid? Are they accumulating (buy) or distributing (sell) the shares?
It reveals exactly how buyers and sellers are trading the financial instrument. If there were 500000 shares sold and 2000000 shares bought in one day then the daily trading volume is 2500000.
Then it will add each daily trading volume to calculate weekly or monthly trading volume. Therefore, the trading volume reveals how much interest there is to buy and sell the asset.
Is it liquid or illiquid? Are they accumulating (buy) or distributing (sell) the shares?
What Is The Price-action Comparable To?
Generally, the price rises, declines and oscillates. Therefore, it has a speed. The speed of the price-action is known as the rate of change or momentum. To evaluate the momentum, technical traders use the momentum oscillators such as stochastic, MACD, moving averages, RSI and CCI.
The price-action can speed up, slow down and reverse too. It becomes clear to me that it is logical to compare the price-action to a vehicle (moving engine).
So if the price-action is comparable to a vehicle, what is the fuel that it burns to generate the energy to propel itself?
Well, that is what I will be sharing under the next subtitle.
The price-action can speed up, slow down and reverse too. It becomes clear to me that it is logical to compare the price-action to a vehicle (moving engine).
So if the price-action is comparable to a vehicle, what is the fuel that it burns to generate the energy to propel itself?
Well, that is what I will be sharing under the next subtitle.
What Could Be Comparable To Stock Trading Volume?
When the stock market traders are buying more and more shares then the price will continue to rise provided that the bears are non influential.
On the other hand, as more shares are sold than bought, the price will decline. It is like the bullish investors and traders push it up to the top of a hill; and sellers are pushing it downhill. It looks to me that it is fair to compare the trading volume to the fuel in the engine.
Obviously, if there is a balanced market, the price will neither rise nor decline, but will instead oscillate. Indeed, both buyers and sellers create the fuel. The trading volume is the undeniable fuel inside the price-action (vehicle).
On the other hand, as more shares are sold than bought, the price will decline. It is like the bullish investors and traders push it up to the top of a hill; and sellers are pushing it downhill. It looks to me that it is fair to compare the trading volume to the fuel in the engine.
Obviously, if there is a balanced market, the price will neither rise nor decline, but will instead oscillate. Indeed, both buyers and sellers create the fuel. The trading volume is the undeniable fuel inside the price-action (vehicle).
How To Use Price-action And Trading Volume?
It is very simple to combine the price-action and trading volume.
However, when one is doing so, one must remind oneself that the price-action is the number technical indicator that will certify every information provided by the trading volume. As long as one is taking that into consideration, one can make profitable decision.
When the price-action establishes an encrypted message in the form of a high probability trade setup, one must always check beneath it if there is a surge in the trading volume beforehand. Look down to the left. Usually, the surge in the trading will take place before the trading setup.
I like to record educational trading videos. I have already compiled a playlist of how to combine the price-action and trading volume. Please check the videos playlist below.
One is effectively combining the momentum and fuel (trading volume).
A vehicle without a fuel will not go far enough; so is a momentum without a surge in the trading volume.
Please check my article about the trading volume.
Link: Stock Trading Volume Article
However, when one is doing so, one must remind oneself that the price-action is the number technical indicator that will certify every information provided by the trading volume. As long as one is taking that into consideration, one can make profitable decision.
When the price-action establishes an encrypted message in the form of a high probability trade setup, one must always check beneath it if there is a surge in the trading volume beforehand. Look down to the left. Usually, the surge in the trading will take place before the trading setup.
I like to record educational trading videos. I have already compiled a playlist of how to combine the price-action and trading volume. Please check the videos playlist below.
One is effectively combining the momentum and fuel (trading volume).
A vehicle without a fuel will not go far enough; so is a momentum without a surge in the trading volume.
Please check my article about the trading volume.
Link: Stock Trading Volume Article
Stock Trading Volume Videos Playlist (Mixing Price-Action And Trading Volume)
Conclusion
It is not helpful to use the momentum or price-action alone. Though, the price-action is the number one technical indicator, a surge in the trading volume will make the trading setup more enjoyable.
Indeed, the trading volume complements the price-action. A surge in the trading volume can lead to either a bullish or bearish momentum after the price-action has confirmed a bullish or bearish trading signal.
I highly recommend that traders learn to combine the price-action and trading volume.
Thank you for reading. Please share and bookmark this article if it has beneficial. I will really appreciate it.
Please post relevant questions and comments at Dayprotraders YouTube channel.
I wish you the very best.
Happy Trading To All
This article is written by
George Beaulieu
founder of Dayprotraders.com
Indeed, the trading volume complements the price-action. A surge in the trading volume can lead to either a bullish or bearish momentum after the price-action has confirmed a bullish or bearish trading signal.
I highly recommend that traders learn to combine the price-action and trading volume.
Thank you for reading. Please share and bookmark this article if it has beneficial. I will really appreciate it.
Please post relevant questions and comments at Dayprotraders YouTube channel.
I wish you the very best.
Happy Trading To All
This article is written by
George Beaulieu
founder of Dayprotraders.com