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how to read volume
- Thread starter billyjoerob
- Start date
Quote from billyjoerob:
http://stockcharts.com/h-sc/ui?s=SD&p=D&b=5&g=0&id=p70824977460
If you look at this chart, the firm announced good news (a large asset sale) and the stock went down on high volume. Normally a decline on high volume would be bearish, indicating a negative reaction to the news.
Let's assume that there are 10 large investors with large positions (with losses) for sale. On a day to day basis, there are no large buyers, and the price floats up on small volume as the large sellers sit on their hands. The large buyers are in no hurry, seeing all the stock for sale. The sellers have a minimum price and otherwise will not sell. Once the news of the deal is released, large buyers show up. Because of the embedded sellers, buyers demand a size discount. If this is correct, the high volume is more informative than the price decline.
If this is correct, the stock should show increased volume over the next few weeks (without much price movement) as the large sellers and large buyers are temporarily equally matched.
Maybe, maybe not. The problem is, its all guesswork and no real edge in this type of analysis. Too many other factors are at work to consider this a viable strategy or even worth analysing.
Quote from wiesman02:
Maybe, maybe not. The problem is, its all guesswork and no real edge in this type of analysis. Too many other factors are at work to consider this a viable strategy or even worth analysing.
if your point is that there is no value in analysing volume, I'd have to disagree. price action alone contains less information than price action plus volume. the point is to create a framework for evaluating situations where volume contains information. nowhere in the post do I suggest a strategy.
Quote from billyjoerob:
if your point is that there is no value in analysing volume, I'd have to disagree. price action alone contains less information than price action plus volume. the point is to create a framework for evaluating situations where volume contains information. nowhere in the post do I suggest a strategy.
That wasn't my point at all actually. My reference was to your above analysis of your hypothetical situation. But carry on with your pissy attitude. I'm out