What You Can Learn From Stock Trading Volume

Odds can be stacked against you, so if you want to change that, just follow the smart money. The Chaikin indicator will dramatically improve your timing and teach you how to trade defensively. Having a good defense when trading is absolutely critical to keep the profits that you’ve earned. When you see this type of action, it’s a warning sign of a potential trend reversal.

The Volume indicator displays the volumes of assets bought or sold over a certain period. The green color of the histogram column means that the volume of the current candle exceeds the volume of the previous one. The red https://www.bigshotrading.info/ color of the column indicates that the volume of the current candle is less than the previous one. With the subsequent upward reversal, the volumes began to decline, which indicates not a new uptrend but a correction.

CMF = 21-day Average of the Daily Money Flow / 21-day Average of the Volume

Technical analysts use trading volume data to assess the strength of a price movement and whether it’ll stay at its new level for very long. When the price of a stock goes up, technical analysts check if volume rose as well if it did, then these analysts consider the price movement more significant and more likely to stick. However, high trading volume can also indicate a price reversal.

• Decreasing volume outlines an area, where the bear trend may reverse.
• It can also show divergences, such as when a price rises but volume is increasing at a slower rate or even beginning to fall.
• High volume provides confirmation that a trend is still active.
• The volumes of trade numbers are reported as often as once an hour throughout the current trading day.
• If an option has high volume and low open interest, there is a limited secondary market for that option, meaning there may also be low liquidity.

The OBV lows are almost at the same level, while the price lows are falling. The downtrend is not confirmed by a decrease in volumes, while the chart shows a divergence. The price decline quickly ends, and a long-term uptrend Trading Volume begins, confirmed by the volume growth. Horizontal volume indicators are not included in the standard set of platforms (they are added separately). The platform focuses on volume indicators, including those for MT4 and MT5.

What is paper trading

Volume of trade is the total quantity of shares or contracts traded for a specified security. It can be measured on any type of security traded during a trading day. In addition to volume indicators, this definitive guide also covers market breadth indicators which are useful for uncovering another market perspective. It covers a wide range of essential topics and opens a window for you to observe the macro players.

• In fact, volume plays an important role in technical analysis and features prominently among some key technical indicators.
• When volume is confirming a downtrend, the OBV line will downtrend at a greater rate than the price.
• Looking at volume patterns over time can help get a sense of the strength of conviction behind advances and declines in specific stocks and entire markets.
• Many people see this as a contrarian indicator because if more traders are buying those could be retail traders but the banks would be selling.
• We don’t want to risk giving back some of the profits gained so we liquidate our position at the first sign of the smart money stepping in on the other side of the market.