Monday, 22 December 2014

When to use volume

I don't use volume as an indicator too often as it can distract from the trend at hand, or create a bias in your mind when you see an increase.

The following chart on QQQ though, is an example of when volume can be used to assist your decisions on a market's next direction.

The yellow lines I've marked on the chart are highlighting big volume builds in the stock. It's clear looking at these, that the 'smart money' buys heavily into the bottoms. 

If you look at the October bottom, the volume was well above the average: a good sign that large transactions were building and a continuation of the up-trend was likely. We also got a nice bounce off the 200 moving average here.

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