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Volume-Price Stock Charting and Technical Analysis

Description: Every analyst knows the importance of charting and Technical Analysis. But if these were all it took to make profitable trading decisions, everyone would be a winner. With most indicators it is possible to detect buy and sell levels. The sport is to detect them before everybody else. This is why Charting and Technical Analysis can be very powerful tools in the hands of the professional.

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Volume/Price Charting and Technical Analysis?

Volume and Price affect each other!

Usually when the index is on an up-trend and the VMA increases you can expect the index to go down. BUT, if the market on a whole is on an up-trend (Bull Market), you can not put as much importance into the volume spike as it may cause the index to go down, but only slightly before it re-establishes it's general up-trend, and vice-versa. So, during a Bull market a big volume spike can change the index to go down and a small volume spike can correct the index up according to the general up-trend.

On the chart below you can see that during the Bull market, several times the index met big VMA's which made the index go down, but those volumes (blue lines) weren't big enough to change the general trend of the market. At the same time you can see how small peaks (green lines) of VMA's corrected the index according to the general movement up.

S&P 500, 10/2001 - 12/2001, VMA 1 day

During a Bear market you can watch the reversal behavior of the volume. It has to be a big VMA spike to make the index go up and a small VMA spike can correct it down again. Since it does not take many volume moving average spikes to the upside to seriously reverse the trend, unless it is of an unprecedented scale.

Usually when the index is in its (support/resistance) channel you can see unprecedented VMA peaks or series of peaks. The explanation is very simple: the wealthy professional traders are buying (during support) or selling (during resistance) a huge amount of securities. (Do not forget that one of the main differences between a professional and non-professional trader is the amount of money being invested into the market.)

S&P 500, 8/2001 - 11/2002, VMA 1 day

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