Use stock trading volume to your favor in investment

Stock price and volume are two major factors in a stock personality. When predicting a stock price trend, volume analysis goes hand by hand with it. When using volume analysis correctly you will increase your chance of better return. Please note there is no certainty on any signs or rules and individual stock reacts differently.

The reason that volume is so important because it is the collective behavior of all investors. Every share of stock trading require a buyer and seller. Collective Investors tend to show consistent behavior over a certain period of time. When price changes over small volume, it is in general not a sign of trend reverse because underlying investors are still the same.

Investors normally watch for high volume trading as an opportunity because it normally is followed by some significant price change. 

A strong uptrend stock needs strong market interest to support its trend. If there is small volume in a big price move, it generally is considered as less important. However, if volume sharply increase after long period of price uptrend with small volume and price remains small movement, it is considered as trend reversal. Sometimes we see both price and volume have sharp change, it normally signals a possible ending of trend.

Recognizing the bottom: when stock builds bottom wave, each reverse of stock price closes at higher than previous bottom price. If it is combining with an increased volume during price downtrend, it is considered as bottom of the trend. Reason is that investors are building inventories for future uptrend, therefore volume increases whenever stock goes downtrend. At the same time, stock is perceived as taking off to higher price in longer term, hence the close price tends to be higher than the previous wave bottom.

In individual stock blogs, I combine the volume theory along with fundamental and price trend so that you can get more practice on price-volume analysis.