How a stock’s trading volume can affect share price

Value Investors are not usually concerned about the ups and downs of share price. They spend more time analysing the intrinsic value of a stock and relying on fundamental analysis to create comfort for instincts. However, even after determining the intrinsic value of a stock and confirming that the fundamentals are fine it is often likely that the stock may not be trading at the your target price. This can present a quagmire sometimes especially if you are not the patient type. This is where technical analysis can be very useful to value investors.

Technical analysis involves using various statistical charts and price determination metrics to predict the movement of stock prices. One of such tools is relying on the movement of the volume of stocks traded.  After pouring through several websites I came across this salient tips that can help one determine the right entry price.

1) When prices are going up and the volume is increasing, prices may continue to rise.

2) When prices are going up and the volume is decreasing, prices may either increase at a slower rate or start to drop indicating a bearish market

3) When prices are falling and volume is increasing, prices may fall further confirming the stock has been taken over by bears.

4) When prices are falling and volume is also falling, then prices may slow down or they may start to increase.

5) When volume is flat, that is neither rising nor falling, it has no impact on price.

 

As a caveat these are just assumptions and are not proven to work all the time. However, I think it is worth nothing. You can get more tips from buyandhold.com as well as Investopedia

 

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