MARKET ANALYSIS FOR NOOBS!! PART #2!

Continue on from previous post where I talked about support and resistance plus fundamental analysis and technical analysis , you can refer here in case you missed it, now I'm going to carry on Volume and a bit on Divergence

https://steemit.com/trading/@tngflx/trading-for-noobs-part-1

What is Volume?

Quoted from investopedia :

Volume is the number of shares or contracts traded in a security or an entire market during a given period of time. For every buyer, there is a seller, and each transaction contributes to the count of total volume. That is, when buyers and sellers agree to make a transaction at a certain price, it is considered one transaction. If only five transactions occur in a day, the volume for the day is five.

So why is it important?

1. It is use for confirmation of chart and trend patterns. Price that move together with high volume is signifying a strong trend and vice versa, but what happen if the opposite happened? It means that the trend is weak and will not last long. When volume tells a different story, it is called DIVERGENCE
2. It is use to determine the support and resistance level (Price action with high volume signifies high interest in this price, everyone willing to buy or sell, that why this price level will attract a lot of retest and bounce off right after)
3. Allow you plan ahead of everyone else to sell or buy, cause extreme price action will occur right after the price with high volume

Cases :

• A stock jumps 10% in one trading day after being in a long long downtrend, does it means the reversal is starting? This is where volume comes in, if the volume is relatively high compare to average daily trading volume then there is a big chance reversal is coming. But, if the volume is lower than average daily volume, then it means the jumps by 10% is just an one time occasion, don't expect it to turn uptrend.

This video perfectly explained how volume and price relates to each other. Took from youtube.

Divergence

Divergence basically means when the indicator (I'm pretty sure you heard of RSI, MACD, Stochastic oscillator and etc, if you don't know them yet, it's ok i'll explain it in another post to come) or other related technical analysis tool shows the opposite result compare to price trend. Just as I described above.

I'll talk more about Divergence in later post. The technical analysis tool is meant for another post. This is just a small exposure :). Another important concept to know is :

Volume Comes First after price action

Volume is an important entity to watch for, and price action that is not backed by high volume is not a strong trend, it might go back to a downtrend pretty soon. Even though the price action are reaching new high everytime, it only signifies the trend will not last long. Technical analyst closely watch this before deciding to determine an uptrend coming or downtrend coming.

Real case application of volume in trading

I attached another video, to make things simpler and easier to understand rather than showing you guys all kind of images, I found this when I self study about this too. Hope you guys find it useful too

If you like it, upvote it , if you loved it, follow me for more such trading tips to come. I myself is a learner too. Any comments or correction is welcomed. But I spent lots of time research on it. Thanks if you made it this far!