New Traders Blog - Price & Volume

New Traders Blog - Price & Volume

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As technical traders your primary tools are trading Price, Volume & Open Interest. During todays blog we are going to examine the relationship that these three key pieces of information provide us and possible clues or tells to predicting price movement and validating our edge in the market.

For todays new trader lesson we are going to focus on some very simple formulas for trading price & volume and a combination of both.

As when know from our first module training session technicians study trading price, volume and open interest relationships.

First up some very quick definitions:

Price:

The movement of a security, commodities or indexs price. Price action is encompassed technical and chart pattern analysis. It attempts to find order in the sometimes seemingly random movement of price. Swings (high and low), tests of resistance and consolidation are some examples of price action.

Volume:

The number of shares or contracts traded in a commodity or an entire market during a given period of time. It is simply the contracts that change hands from sellers to buyers as a measure of activity. If a buyer of a commodity buys 1 contract from a seller, then the volume for that period increases by 1 contract based on that transaction.

Open Interest:

The total number of options and/or futures contracts that are not closed or delivered on a particular day.

So to kicks things off lets assign a + bullish and bearish values to our three studies to track their relationship:

+ (increasing price and volume or open interest) + bullish

- (decreasing or volume or open interest) bearish

Lets now take a look at the relationship between trading price, volume and open interest.


Market conditions

1.Price increasing on increasing volume = bullish.
-Underlying activity is that new buying pressure and or shorts are being offset.

Note: Often when we see a strong bearish day where the is aggressive selling and strong bullish spike occur. This is often short covering and can occur very quickly as shorts tighten their stops. We will also see volatile

2.Prices decreasing on increasing volume bearish. There is new selling pressure and/or longs are offsetting.

3.Price increasing on decreasing volume bearish. Buying pressure is starting to dry up. A downside reaction is likely, the saying dont buy a quiet market after a rise is our rule of thumb here.
4.Prices decreasing on decreasing volume bullish. Selling pressure is diminishing. An upside reaction is likely. Dont sell a quiet market after a fall.

In tomorrows blog update we will be examining the relationship that open interest has on trading price, volume and open interest.

Have a great trading day.

Shane Fry
GMT Trading Coach
www.globalmarkettrader.com

shane@globalmarkettrader.com

About the Author:
Global Market Trader is a company forging the way forward in trading education and Trading Price & Volume. The company has the perfect mix of Professional trading experience over 16 years of system development and trading education.



Article Originally Published On: http://www.articlesnatch.com


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