Volume / Price Analysis

This is a discussion on Volume / Price Analysis within the Technical Analysis forums, part of the Methods category; Q. From Dr Iraj: “When buying volume increases the price increases. Very often there is a price increase while volume ...

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Old Jan 14, 2001, 7:55pm   #1
Joined Nov 2000
Question Re: Volume / Price Analysis

Q. From Dr Iraj: “When buying volume increases the price increases. Very often there is a price increase while volume decreases. Why is this? Also, would you buy a stock, which exhibits the second scenario?
ANSWER FROM Traderx:

Generally speaking decreasing volume on an up day (NO DEMAND) is Bearish Volume.

If the volume is low and the price moves up (in nearly all cases) this has to be a false picture. The low volume is caused by the professional money refusing to participate in the up move, usually because the market is weak. The price is moving up, but it does not have the support of those traders that matter. This is a feature of a bear market – UP MOVES ON LOW VOLUME.

The reason for the non-participation of traders is because they have seen weakness in the background action. THEY KNOW THE MARKET IS WEAK.

If this price / volume action is seen with a trading range to the left it is a very strong sell signal. In most cases the mark up is quite deliberate.

It usually starts with a wide spread up but not too early so as NOT to cut you out of the market. This is often a deception to draw in as many ‘retail’ buyers as possible. Buyers are then ‘locked in’ by the inevitable sharp down move.

EXCEPTION TO THE LOW VOLUME RULE

If there is a low volume (UP DAY) on the very first day of a break-out from a genuine accumulation area, the result is often a rapid one day UP MOVE on low volume.

This is NOT a sign of weakness. The wide spread up and out, on the first day from a genuine accumulation area, on low volume is caused by SHORTAGE OF STOCK.

Most of the supply has been removed by the professional buying at these levels. This LOW VOLUME UP MOVE out of an accumulation area is therefore an indication of STRENGTH.

Most up moves on low volume are a sign of weakness. Genuine NO DEMAND or low volume up-days always have market weakness in the background which the professional money has seen. During a bear market the volume is generally lower as prices fall, because there are fewer people trading. The professional money is not buying in sufficient amounts to make the volume even average, because they are bearish.

A MM or Professional Operator will NEVER fight the market. He will take advantage, if possible but will never fight it. If he does he will go bankrupt. If any up move occurs and he is still bearish, he simply withdraws from the activity. This is the cause of the low volume on the up move, (in other words he is not interested).

So, coming back to answer your quiz, the bottom line is this:

There are two primary causes of upward price on low volume.

1. = WEAKNESS and refusal of the smart money to participate. FALSE PICTURE

2. = Start of an UP MOVE after accumulation and lack of supply (SHORTAGE OF STOCK) after supply has been discretely removed at lower prices.

Finally, in answer to your last question, “would you buy stock which exhibits upward price on low volume”?

That is a judgment call. There are obvious (INCREASED RISKS) this is a critical time and it is easy thing to get it wrong as we have all experienced. The problem we face is deciding if genuine accumulation has taken place (START OF AN UP MOVE) or is it a no demand up move (BULL TRAP).

This research is based upon the book ‘The Undeclared Secrets that Drive the Stock Market’ by Tom Williams, 1993, Genie Software Limited. I still consider this book to be more advanced than any other publication on trading. The author Tom Williams is an old city trader who really knows about Volume/Price and Volume/Spread analysis, sometimes difficult to master his techniques, but a very potent text.
*******************************************

Tx

Please bear in mind the following statement, “VOLUME IS THE MOST IMPORTANT FACTOR IN TRADING” (Dr Iraj)

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Thanks! The following members like this post: Lori P , chump
Old Jan 14, 2001, 8:48pm   #2
Joined Dec 2000
Post Re: Volume / Price Analysis


Excellent post, Traderx.

Where can I get this book??

Sukhi
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Old Jan 15, 2001, 6:55am   #3
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traderx started this thread Sukhibraich

Thanks, I bought the book some time back on the UK-Invest bookshop about £40

Tx
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Old Jan 15, 2001, 4:12pm   #4
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Does the author give any indication of volume patterns BEFORE the upmove, ie any chance of recognising if it is good or bad
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Old Jan 15, 2001, 11:55pm   #5
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traderx started this thread Cigar

Hi mate, I think this is a judgement call. The way I see it, when a stock is subject of accumulation the professional operator will sell pockets of stock to force the price down, which of course induces weak holders to sell, in turn making stock available at the price he wants to pay. This can easily be done when the stock is weak. This can go on for some considerable time until the floating stock is removed from the market. Then the MM begins to test the supply in the market by gapping down, which we see all of the time. If many sellers appear then the stock is not ready to rise. Joe public starts buying as the price rises higher and the smart money has entered the distribution phase, selling at a profit and so the cycle goes on. I think we have more going for us these days with access to L2 or daily trades history on the likes of ADVFN to allow us to make the correct judgement. I am not sure this has answered your question, I am not aware of any patterns that identify the type of volume but I hope this helps.

Tx
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Old Apr 17, 2005, 9:05pm   #6
Joined Dec 2001
Does anyone has a copy of "The Undeclared Secrets that Drive the Stock Market’ by Tom Williams" that are willing to sell?

Simon
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Old Apr 17, 2005, 10:59pm   #7
Joined Jul 2003
If they're 'undeclared' and secret', it's unlikely.

But I do have an e-book "The Secret Fibonnaci Numbers from His Matrix that Time forgot, but call it £40 and it's yours" if you're interested.
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