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)
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)