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Volume Bars-Significance and Application

 

Volume-Bars
Volume Bars-Significance and Application

Volume Bars-Significance and Application

Volume plays a very important role in technical analysis. We can see the volume Bars in each and every technical chart. We will see how volume bars works and why it is of great significance while taking the trading as well as investing decisions.
First of all, we will understand the volume in stocks and how it would be counted :
Trading of 100 shares = Buying of 100 shares+Selling of 100 shares
We can understand like this, if anybody wants to buy the stocks then he/she can only buy them if anyone wants to sell them. When someone provides a supply of the stock in the market then only the demand can be fulfilled. one has 100 stocks and he sold them to another party and he bought 100 from him so the quantity traded for the stock is only 100 rather than 200.  Many people were confused about this and treated this with 200 traded quantities.
Volumes indicate how many shares are bought and sold over a particular time frame.

Where are the volume bars?


You can see in the above chart, the circled part is known as volume bars. If you talk about volume information all alone then it will not give you much information but if you study volumes bars with it's increased or decreased price trend then it can be proven very meaningful. Let's see below the relation between price and volume:

Case         Price          Volume             Significance
1             Increase       Increase             Bullish
2             Increase       Decrease            Stay cautious as weak hands are buying
3             Decrease      Increase             Bearish
4             Decrease      Decrease           Stay Cautious as weak hands are selling

Significance and Application

For understanding the significance of these cases, first, we should understand that for what we will say volume increased or decreased.
As the rule of thumb,
If the volume of today > the average volume of 10 days 
= Volume increased
If the volume of today < the average volume of 10 days
= Volume decreased
If the volume of today = average volume of 10 days
= Average Volume

How you will find average Volume?

The average volume can be found after drawing a moving average line on volume bars.


Now, We will understand each and every volume case with its significance and application with relation to the stock price:

In case one: Price is increasing + volume of the stock is increasing means buying of the stock is going on, and retail investors cannot make a big impact on volume bars if volume bars get impacted means institutional buying is going on ( which implies buying of stock in bulk). If the price increased with its spike in volume bars it can be a bullish reversal in the stock and long can be initiated after other charts evaluation is done.
https://bijimoney.blogspot.com/2020/08/Spinning-Top.html
https://bijimoney.blogspot.com/2020/08/Paper-Umbrella-Candlestick.html

In case two: Price is increasing + Volumes of the stock is decreasing which means that stock is going up but weak hands are creating demand which cannot put long-lasting influence on the stock and stock can turn its journey path anytime from here so investor have to stay calm and cautious and wait for more before creating long in the stocks.

In case three: Price is decreased + Volume os stock is increasing which means that institutional selling is going on and the price of the stock can turn weaker from here.

In case four: Price is decreased + Volume of the stock is decreasing which means that weak hands are selling in the market and the price can turn stronger at any time so stay cautious while shorting from here.

Always remember that volume plays a very important role while trading or investing at right levels, as your volume will tell you definitely that what is going on at the backend, if institutional buy something then for sure they will not buy in 100s they will buy in 100,000s and that will create a difference in volume bars so before shorting or going long on the stock it is of great importance to check for the volume bars.
https://bijimoney.blogspot.com/2020/09/Support-Resistance.html



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I have started this blog to educate people regarding saving and investment of their hard-earned money wisely to become big, investing decisions play a very important role in our life to meet our retirement expenses and brighten our future.

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