Volume is calculated by the number of shares that have exchanged hands between buyers and sellers. Lots of technical analyst use volume as their main indicator because it reveals the level of interest for a particular stock.
We can only warn you that stocks that don't have much volume are a lot harder to get in or out. Just follow this basic rule "If there is not enough consistent volumen, leave that stock alone". There are over 2000 stocks in the ASX market to look at. The Dow Jones has over 4000 stocks.
Volume on lows - you will sometimes notices large volume spikes for no apparent reason. If the price of stock falls, more and more investors may decide to exit their trade. Price may also fall further as mechanical system mainly run by big institutions are triggered.
You may sometimes wonder why would investors buy stocks that are going down in price. The answer is quite simple, not everyone is thinks the same way. Some investors are there for long term investment other for short term.
Large volume on lows are worth keeping an eye on. There can really be a great opportunity to capitalise on.
Let us give you an example of what we mean by large spike volume on lows..
In the picture above, please note that everytime the stock dropped to the $20.50 price there was volume spikes. This simply indicates that investors believe that the stock is probably a good buy at that price. It confirmed the strong support three times before supply run out and demand kicked in.
Please review our previous lessons about support and resistance. Later on in intermediary and advance chapters we will show you how to spot a perfect trade. You won't believe how simple it is.
The same applies for volume spikes on highs. When you see volume spikes on high and the stock does not advance past the most recent highs, chances are the price may fall. Let's illustrate this by a real life example..
As you can see there were a few volume spikes on high, and immediately after the prices dropped.