How volumes and price plays an important role in decision making? – Praveen Pathiyil

On the other hand, if Reliance has traded 8 lakh shares on the particular break out day (which is more than daily averages of 6 lakh shares); it means people at large anticipate the price raise in the stock. Such a break out day usually signals a genuine price breakout and in such cases one can take position depending on the break out side. This price volume breakout theory works well for positional traders, in particular almost 80% of the time in our Indian stock market.

In short, volume is a grave factor in technical analysis. It is used to confirm trend and chart pattern. Any break in support or resistance level is not valid unless it is been backed by high volumes. Volume should move along with the trend. If prices are moving in an upward trend, volume should increase, and vice versa. If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend. For example, if the stock has uptrend, but with lower volume, it is a sign that the trend is starting to lose its legs and may soon end.

Price and Volume theory:

Trend in ‘Price’ and ‘Volumes’combines percentage price change, and volume in an attempt to confirm the strength of price trends or through divergences, counsel of weak price moves. Unlike, other price-volume indicators, the Price Volume Trend takes into consideration the percentage increase or decrease in price, rather than just simply adding or subtracting volume based on whether the current price is higher than the previous day’s price.

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