How volumes and price plays an important role in decision making? – Praveen Pathiyil
Volume is one of the major indicator which helps market players who are trading in stocks to make decision. It shows the total number of shares, traded in the exchange within a specified market time. It is the additional significant parameter to judge the potential of a stock after price levels. Many traders consider the volumes data and the price chart of a stock together while taking a position in a particular stock. Let us see why volume of the stock is so important in judging the potential of the stock through two most widely used theories.
Price Volume breakout:
For example:-Consider, Reliance has given a breakout of a technical pattern or breached the previous resistance level, and we expect the rise in price to continue for the next few trading session. Now, we need to look into volumes to understand whether the breakout will last or not.
Now considering the volume for the breakout day,say it stands at 4 lakhs shares, however if the daily average volumes is at 6 lakhs it indicates, volumes was low on the breakout day compared with the normal trading day. This indicates all the big players in the counter haven’t traded on the breakout day and the price move may not last long. Big traders will trade on next trading day, with bearish outlook on the stock. This selling pressure has the capacity to generate pain for the stock. Indeed, the stock is set to fall.