Technical Analysis of the Volume
The technical analysis of volume is a basic yet very important element of
market timing strategy. Volume provides clues as to the intensity of a given
price move.
Volume can help determine the health of am existing
trend. A healthy up-trend should have higher volume on the upward legs
of the trend, and lower volume on the downward (corrective) legs. A healthy
downtrend usually has higher volume on the downward legs of the trend and
lower volume on the upward (corrective) legs.
Especially volume for indexes and volume-based
technical
analysis are very good indicators to predict index shifts.
Intraday volume helps see where a stock is being repeatedly
bought as it dips. Likewise, towards the end of a rally, a wide volume spike
often signals that the move is at an end, at least short-term. If you weren't
aware of it before, I hope you're starting to see why volume is a trader's
best friend.
Volume technical analysis for QQQQ timing (AMEX:
QQQQ),
S&P 500 timing
(AMEX: SPY),
Dow Jones timing
(AMEX: DIA) based on the volume of all index constituents works very
well for index shifts timing.
A moving average of the volume should also be taken
into consideration in developing your Market Timing system. A Moving Average
is an indicator that reveals the average value of a security's price over a
period of time. This is important because when the current volume rises above
a long-term volume moving average, this is potentially a signal that there
is increased market activity that will be affecting the price. Thus, it is
important to provide this indicator as an input.
Additionally, unlike many indicators, volume is applicable
to every timeframe. How can this be? Simple. Volume is simply a measure
of sentiment, of human nature. And fortunately for us, human nature is
the one ever-present constant of the stock market. Never forget that fact.
Once you have your own emotions under control as a trader, knowledge of this
profound fact will guide you ever after as reliably as the Northern Star guides
a lone sailor across a vast sea. Now you should really be starting to see
why volume is a trader's best friend and .
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