Professional Wall Street insider asserts under oath: this stock market instrument is NOT outlawed!
This money pulling indicator is used by billion dollar hedge fund traders like Steve Cohen who’s firm has average over 40% a year. Cohen’s firm, S.A.C., which has as its name his initials, is a billion dollar hedge fund monster. His trading profits have averaged about 65% per year.
He has some 60 traders working for him. He is a master of watching a stock’s volume.
Volume is probably the most overlooked indicator by newbie traders.
We all have holes in our learning: You need to read this article and make sure you plug the holes you might have in your learning of how to effectively use the volume indicator.
Think of each tick in the volume as a temporary meeting of two minds: a seller and a buyer. The volume is a still picture of the psychology of the crowd trading a particular stock or market. Volume is usually represented by a histogram bar. Volume gives you hints about the underlying psychology of bears and bulls. Rising volume confirms the trend while falling volume questions the trend and whether the dominant group can keep it going.
In a sell off, increasing volume into the move tells you that panic has firmly settled in as traders scramble for the exit. Now notice the upticks and shallow buy orders every now and then: These are the rookie stock traders buying a downward move in hopes that the trend reverses and heads back up. Remember, in order for a sell order to execute, there has to be a buyer somewhere. Buying a stock that is in a downward spiral is like trying to catch a falling knife. Most often it is a bad idea. Only fools place their bets against the wisdom of the crowd. Allow some other idiot to do that. When all the sellers have exited the stock, the volume on the downside falls off as the downward move begins to run out of steam.
In an uptrend, rising volume shows that greed has a firm grip on the people trading it. It also shows sellers dumping their position betting that the market is going to turn around. Remember, in order for a buy order to execute, there has to be a seller somewhere. Closing your position into an upward move makes sense if your original profit target has been hit. When all the buyers are done chasing the stock higher, the volume on the upside falls as the uptrend runs out of steam.
But volume tells more than just the conviction of the current trend. Volume gives smart traders important clues.
A one-day splash of uncommonly high volume often marks the beginning of a trend when it accompanies a breakout from a trading range. A similar splash tends to mark the end of a trend if it occurs during a well established move. Extremely heavy volume, two or more times above average, describes market hysterical neurosis. This is when fearful bulls finally decide that this uptrend is for real and rush in to buy or it is when fearful bears become convinced that a decline has no bottom and rush in to sell short.
Divergences between volume and price usually take place at psychological turning points.
When prices rise to a new high but volume falls, it shows that the uptrend attracts less interest. When volume falls while prices fall to a new low, it means that lower prices are attracting little interest and an upside reversal could happen at any time. Price is slightly more important than volume but millionaire traders analyze volume to figure out the psychology of the crowd before committing to a decision.
I hope you use this article to snatch a ton of money from the stock market. For more FREE expert stock trading tips and advice go to stock market and for a the popular lite browser visit free stock analysis