Friday, July 14, 2006

Price and Volume

If volume and price rise together price will decrease. If volume and price fall together look for a price rise. These don't happen very often. What happems most of the time is that volume rises and price falls or price rises and volume falls. If price is rising while volume is falling price will continue to rise until volume changes direction. If price is falling while volume is rising price will continue to rise until volume changes direction and falls.

Clear? A picture is worth a thousand words or at least that handful above.

The line marked "a" shows an example of price rising with volume to a point then right after volume changes direction price begins to decline.

I don't use price and volume much in my daily activities because it really only seems useful (to me) for long term investment decisions. However if you know the direction and tendency of the market this would seem to be a useful indicator when deciding whether to go short or long.

This is a very smoothed diagram of price and volume action provided to illustrate the point. Don't use it in to make any investment decisions.

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