Volume and Price Question

[cpatte7372]

Hi,

Can someone educate me on what is considered to be an "Increase in price on low/high volume"? If you could provide some examples I would appreciate it.


Cheers

Carlton

[DuaneG]

Hi Carlton,

Basically, the price increase on high/low volume is a way to describe the price behavior when there is unusual volume for a particular stock. The price increase is related to the volume activity for a given period. Simply stated, higher volume=higher average cumulative return. Hope this helps.

[cpatte7372]

Duane,

That help immensely.

I have another question. Lets say I'm watching a particular security and there is a surge/spike in volume, that would obviously indicate that there is an interested party buying the stock. However, what is considered, to be a spike?

Cheers

Carlton

[DuaneG]

Hi Carlton,

I just wanted to offer a bit of clarification.

Lets say I'm watching a particular security and there is a surge/spike in volume, that would obviously indicate that there is an interested party buying the stock.

Not necessarily. Not all spikes in volume equal a jump upward in the price action. The direction of the volume in question is a good indication of what is happening with the price. When there is large down volume, it usually indicates some sort of distribution is taking place and the price drops with the corresponding volume. In regards to spotting volume spikes, you may want to try adding moving averages to your volume until you become accustomed to spotting them without the MA. Just some of my thoughts.

Another way to think of this…

Selling / Shorting = speculation that the price action has topped. (Adding to the supply)

Buying / Short covering = speculation that the price action has bottomed (Adding to the demand)

Volume is simply the magnitude at which either one of these behaviors takes place.

[cpatte7372]

Duane,

That is excellent mate.

Thanks for sharing your incites with me and the rest on this forum.

Cheers

Carlton