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This video introduces you to the use of Volume in technical analysis.
This is the third video to start learning basic technical analysis techniques.
This is the video:
This is the text:
Hi there sylvain vervoort here with another learning video about technical analysis. In this part 4 I will look at volume. If you like this video series, pay a visit to my website at stocata dot org. The final purpose of this series is to teach you how to trade successfully applying technical analysis.
Volume bars are represented mostly as a histogram in a separate window below the price bars. Rising volume with rising prices point to a rising trend or stock accumulation. Rising volume with falling prices point to a downward trend or stock distribution. Falling volume, on the other hand, points in the direction of a temporary price correction.
In the Unilever chart here you can see rising prices beginning of March with rising volume. This is followed by a small price consolidation, confirmed with falling volume near the end of March. The volume uptrend or downtrend is indicated by linear regression lines over the volume bars.
The price continues its way up and a new top is reached with up-volume. Falling prices and falling volume in May indicate a correction, an additional price up-move is expected after this correction. The new up-move starts in the second week of June and moves up until the beginning of July, with increasing volume.
The next move down is not simply a correction, but the start of a new downward move, because prices are now falling with rising volume. The move up started in August is a price correction because it has decreasing volume. As a whole, you can see an up-going trend with corrections from March until the beginning of July, followed by a down-going trend.
Lets have a look at the hourly chart of Sprint Nextel Corp. Price is in a down move and lost already some 20% in less than one month.
June 10 2009 price breaks previous support and makes a new lower low. What would you logically expect? Right! A further move down. But are you right?
Before we start selling let’s have a look if other arguments support or contradict this reasoning. First we draw a downtrend line (more on trend lines in a following video). And a parallel line through a first low point on the other side. Now we have a trend channel. Price reaches the low side of this channel now. So you would expect here support and price turning up. This is a first contradiction to the idea of selling.
What does volume tell you? Up to the last top June 8, everything developed the normal way. In the downtrend, volume was moving up with falling prices, and volume was down during up correction phases. However the last down move shows decreasing volume. It looks like the selling power is drying up. This is an indication that price is most probably close to a turning point. Also, not that strange is perhaps the volume that is slowly rising again during the last 4 hours. These are probably knowledgeable market parties now accumulating the stock. Looks like you have a second contradiction to the idea of selling.
Another thing we can do is call-in the help of an oscillator that is also based on volume. I am using here my own SVAPO oscillator. SVAPO stands for Short Term Volume And Price Oscillator. SVAPO confirms tops and bottoms in price when it moves close to the upper or lower reference levels. It also creates normal and hidden divergences with price. “A” shows a hidden divergence with lower tops in price and higher tops in SVAPO. “B” is a short term normal divergence with higher bottoms in SVAPO and lower bottoms in price. “C” is again a hidden divergence and so is “D”. Now we are at a point that if price turns up, we have a nice standard divergence with a higher bottom in SVAPO and a lower bottom in price. However there is no confirmation yet. If you want confirmation you will have to wait for the next hourly bar. Still a turn up of SVAPO here is quite possible and contradicts also the selling idea.
As a matter of fact the confirmation was given the next hour with a bullish engulfing pattern in the Candlestick chart. A bottom reversal pattern.
And price went actually up with almost 20%. However it looks like price is again making a turn to the downside. Would you expect a further down move here? Yes you would, because price reaches a previous resistance level, volume was down during the price up move, pointing in the direction of a correction in the downtrend, and finally there is also a divergence between the higher top in price with a lower top in SVAPO.
And as you can have a look at what came next you can see that price made a new lower low. Note the nice divergence at the price lowest low point and the higher bottoms in SVAPO. Here it was time to close a short trade and time to go long. Price has now risen again up to an important resistance level and with the divergence in price and SVAPO, you better look for closing the long position.
That’s it concerning the volume component and the price volume relationship. We will talk extensively later on about the SVAPO oscillator. Again I hope you enjoyed this video. Watch out for the next one. Stay in touch, subscribe to my channel, give me your comments, rate this video and pay a visit to my website: stocata dot org. Have a nice day and I hope I see you in my next training video.
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