Interpret price, volume for analysing stocks
In stock market, understanding the relationship between price and volume is very important in technical analysis.
In stock market, understanding the relationship between price and volume is very important in technical analysis. This further helps in interpreting the trend and future price movement.
While analysing the stocks for purchase if price movement and volume is combined with an indicator then the analyst can arrive at proper decision.
Volume gives an indication of the momentum of a move in price. Volume is a measure of quantity traded in a given period of time or how many times the asset has been sold or bought over a particular span.
Let us try to analyse the relationship between price and volume.
If volume is increasing along with the price, then it indicates that there are more buyers in the market even at a higher price because they believe that it is a good quality stock which is bound to rise in the near future.
In this case the buyers and seller are happy in buying and selling at higher prices. Increasing price accompanied by an increase in volume confirms the upward price trend.
Sometimes price moves side-ways and volume keep falling. In this case, price faces strong resistance at a particular level.
The seller is willing to select the higher price, but the buyer is apprehensive of a further increase in price as it is facing resistance. The price has moved a certain level and the buyer is hesitant to buy the stock.
If the price is in falling streak and volume is increasing it means that there is a huge selling pressure even at low prices and so the volume is increasing. Selling pressure is high because of the fear that their price might drop even more.
Here, sellers are willing to sell even at low price. In another instance price gets a good support at a certain level and volume keeps falling.
Sellers are not selling out of here and awaiting as a family believes that the stock price will raise in near future because the price found support at a very good level.
In all the above cases there is a change in price along with the volume. These changes are primarily because of news. One can notice change in price and volume as it has been triggered by news.
For example, if the quarterly results of any particular company is not favourable then an immediate decline in price can be noticed.
With the help of indicators, entry and exit signals can be identified by looking at price action and volume indicator.
(The author is a homemaker who dabbles in stock market investments in free time)