If only trading is as simple as ABC
Let’s admit it that trading is not as simple as ABC. If not, please do me a favor by click on the following link for youtube and watch your favorite drama. This article is not meant for you. If trading is as simple as ABC, your neighbourhood will be filled with rich families. Entering any trade position is always about ensuring a higher odd in your favour. In short, achieving a higher probability of winning the trade.
And today we will talk about using 7 simple volume trading strategies to increase your winning probability! Volume is one of the oldest and basic trade indicator and is available in all trading platform. Volume Analysis is a method of assessing the health of a trend, based on the volume activity. To observe the selling and buying activity of Stock at key levels. Besides that, it not only a good indicator to chart technicians, market fundamentalist also take notice of the volume of shares traded.
The tricky part is that volume can also provide conflicting confirmation for your same trading setup. And it will be your ability to decode what the volume is trying to tell you in conjunction with the price action, which matters the most for your successful trade.
Let’s read on for the 8 ways on using Volume to increase your winning probability.
Before we start off, have you ever wondering, are there any phrases in the Stock movement? The answer is a YES and they are namely :
|Accumulation||The establishment of an Investment or speculative position by professional interests in anticipation of an advance in price.|
|Markup||A sustained upward price movement.|
|Distribution||the elimination of a long investment or speculative position.|
|Markdown||a sustained downward price movement.|
“Trading is a probability game, you can win and you can lose too. It is your job to minimise your loss and maximize your win.”
1 Knowing the top 30 traded volume Stocks
It always handy for traders to know the most actively traded Stocks as it provides extra information like the liquidity, insight into the stock market trend. It does indicate big interest that could work in a big Stock price movement.
Stocks being in the top 30 have the center of attention; all traders are focusing on it. And it is your responsibility to dish out the probability of how likely the price increase or decrease will follow, and to be together with the next wave of the Stock monument to come.
Such information of Top 30 traded Stocks is easily available. You can simply search out such information easily, as well as many financial websites like Yahoo Finance and Google Finance or use CompareForDifference.com that offer lists of daily top trade Stocks.
Simply input and search for the particular Stock and the website will gather all information for you. It will display the basic Stock information and the days which it had appeared in the top volume.
and click on the title to view the data for that day.
The detail of top traded Stocks will appear as follow. You can dive further into different section like Top 30 Volume, Top 30 Gainers, Top 30 Losers, Top 30 Gainers by Percentage and Top 30 Losers by Percentage as well!
2) Volume and Market Interest
A rising volume is often the sign of rising trend. And In order to move the prices higher and higher, traders on the buyer camp need the increasing volume together with the increasing enthusiasm. Likewise for the seller camp.
But what does it mean when the Stock showing increasing price together with decreasing volume? On the high probability, it showing a lack of market interest and could mark the start of a potential reversal. An increasing Stock price(or decreasing) on little volume is not a strong signal for you to seek a trading position. A much clearer and a better signal will be when there is an increasing price (or decreasing) on large volume. Something fundamentally of the Stock has changed.
When Stock price increases with more than average volumes, it is a healthy sign (Bullish). And If Stock price decrease with high volumes, it meant weakness. Strong positions may have existed.
3) Use the history of Volume to paint a story
The history of Stock volume should be analyzed in parallel of the trend of the Stock as well. The longer the timeframe of Volume History and Stock trend, it will paint a better picture of the trend’s strength. Stock trend consists of Upward, Downward and Sideward and it always a repeating of such combination. But when using Volume Analysis along, it will be easier to determine if you are in a better winning probability for each entering point.
“Volume trading has become my personal favorite strategy for one reason: it’s an incredibly efficient way to understand and predict trend changes. Just by taking a closer look at volume patterns and finding some spikes can show you very accurately whether the trend is going bullish or bearish. For me, volume trading has been a great support when trying to find “confidence” in my trades – by looking and analyzing volume, I get a much clearer understanding of potential trade reversals or any other potential patterns that might occur.”
4) Expansion of range and high volume
Do you ever come across in your day trade of Stock that drifting along boring in a sideways, narrow range? And all of sudden it breaks or gap upward with an increase in range and volume. For such Stock with increased interest, we can safely conclude that it will probably continue higher. But in order to determine the strength and duration of the upward movement, study the accumulation phase carefully. The longer period of the accumulation phase’s stay, the more you can expect for the next upward price movement to come.
“They say a picture speaks a thousand words then the volume indicator speaks volumes! Not understanding volume would be entering a trade blindly. Here we demonstrate a simple understanding of volume
The definition of the volume is the measure of the number of shares that are traded in that particular counter. It is important as it could confirm the trend direction.
Taking a looking at Golden Energy :
We can see that there was an increase in volume on 21 st Aug at the key resistance of 0.42. In fact, the volume for that day was the highest for the last two weeks. With that, we might conclude that there could be some buying interest in this counter. And once it breaks 0.42 we can see even more volume coming in on 22nd Aug which indeed helped to sustain a nice up move after that.”
5) Narrow range and high volume
When a Stock experiencing very high volume but it all happen within a tight range, it is commonly refer as chuning. It means that some significant phase like accumulation or distribution is taking place. And you need to put perspective with reference to the overall chart in order to determine; accumulation or distribution
Interpreting volume on a stock chart can be confusing as it is! Just remember that the price action is the most important factor on a chart, but you should use volume as another mean to confirm the price action, in order get a better winning probability!
6) Determine uptrend/downtrend with Volume
You can use Volume as one of the ways to identify both bullish and bearish signs. With Trend consist of up and down the wave, comparison of each wave with the rest(Up or down), in term of Volume can provide valuable insight.
Here’s the deal.
In the following example, there are 3 down waves. There is a huge selling volume on the first wave down. But on the 2nd and 3rd down waves, the selling volume diminished. Besides that the price on the move back lower stays higher than the previous low, together with the “favorable” volume, this can be interpreted as a bullish sign with a high probability.(need to expand more in detail)
When everyone else has jumped off the bandwagon, nobody’s left to propel the price lower. Be sure to get ready to jump back on(Take note of the trading period). This advice is usually correct when there is a volume spike with price making new highs.
The underlying principle is the same — the crowd has exhausted its supply of cash.
7) Finding Bottoms/Tops using Volume
In finding the Bottom of Stock, we focus on searching for both Markdown and Accumulation phase. In the first phase -Markdown, Stock may experience violent sell down or even gap down, and often accompany with higher than normal volume. After a fierce sell down, there will be a few round of price rebound. Traders should not take it as the bottom, and get excited to get into Long Position just because of some better buying volume. Such high volume bounces often indicate short covering. This set of price movement and volume activity (work out in a few waves) does not mean that the Stock has reached an immediate Bottom and new uptrend will be next to come.
Often, new money enters quietly in next, Accumulation phase. In this phase, beaten down Stock can have sideways trend or continue the march south and remain such conditions for months before it ready for the new uptrend. The volume may be dip lower than normal within this long and boring trading ranges. And these boring trading ranges are being ignored by traders. But this is the long and boring trading ranges that build up and stored the energy.
likewise, it the same for finding the Top, except that Markup will happen first before Distribution phase.
Stock has the following tell tale signs when at the Top.
|At the Top.||Description|
|1||Markup||The stock had a fantastic run-up that leads to three-to-five times the average daily volume, often over a number of sessions.|
|2||Distribution||The security enters another new phase, where it often unable to break the price resistance due to insufficient buyers. And it showing sign of buying fatigue with a lower trading volume.|
Stock has the following tell tale signs when at the Bottom.
|At the Bottom.||Description|
|1||Markdown||The stock had a climactic sell-off that leads to three-to-five times the average daily volume, often over a number of sessions.|
|2||Accumulation||The security enters a long and boring phase often for weeks or months where the volume dries up, often lower than average daily volume.|
It is important to practice risk management when trading Stock that have already had large moves, as the risk/reward ratios can become unfavorable. Instead of chasing the Stock, wait and observe how the Stock react to the move can often reward patient traders with a low-risk entry point.
So what are your favorite volume trading strategies? do share with us in the comment section and we welcome any constructive suggestion of new volume trading strategies. We will be happy to add it into this article with full credit to your site.
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