Wednesday, November 12, 2014

How to Trade High Volume Trading Stocks

The stock market is one of the biggest financial markets that can enable investors to earn huge sums of money. The key to being successful in this market is to know when to buy and sell stock as this can have an impact on the stock price.
There are numerous trends and factors that can influence the stock price and one of them is volume, which is its complement. Whether in declining or rising markets, large increases in volume are a very important indicator of a change in trend. Considerations of volume can be of very valuable in long-term and intermediate technical trading. The internal strength of a trend can be measured through volume. Spikes in volume are regarded as definitive statements to the end or beginning of a rally.
High Volume Forex Trading
Lots of traders and investors don’t know how to go about volume trading. The following steps can prove to be immensely useful for them:
  • High volume should be considered an important measure of a change in the trend of stock price. A spike in volume is defined as when the volume of stock sees an increase of nearly 200% from the volume of the previous day. It is also a 200% increase in the moving average of the last 10 days. High volume can also be used to refer to 300 or 400% of the previous volume.

  • The recent trend of the stock should also be examined. The average volume should also be measured. The accumulation phase is defined as when a major buy program is completed by a major buyer of stock a flat price period in which volume is steady is preceded by high volume and price.

  • The stock should be purchased if the price of the stock hasn’t risen more than 5% since the high volume occurred. If there is movement in stock, investors should wait until the stock has risen and fallen in a minor reaction. Price increases should keep the volume of the stock high while a major decline in price should also cause the volume to fall.
  • Stock should be sold in a series of distribution days. Distribution is defined as when the volume of stock rises i.e. becomes high as compared to the previous day, but the value of stock sees a decline. This usually happens in intermediate moves where prices are topping. Moreover, this is an indication that the buying power is shifting from the stock buyers and onto those who are selling the stock. This leads to high volume trading.

Even though volume is a simple tool, it can be very powerful as long as traders know how to utilize it. It is possible to find information about volume from anywhere, but investors can use the aforementioned steps to learn how to use this tool for minimizing their financial risk and maximizing their profits as much as possible. Overlooking volume can be a mistake, which can make a difference between the profits and losses earned by a stock market trader.