Price - Volume Relationship Pi Price shows where a seller meets a buyer- where supply meets demand. When prices change, the relationship between suppl

Transcription

1 Price - Volume Relationship Pi Price shows where a seller meets a buyer- where supply meets demand. When prices change, the relationship between supply and demand also changes. Volume is an additional insight into the dynamics of supply and demand

2 Supply-Demand Dynamics and Price If prices are rising - EITHER demand is increasing OR supply is decreasing OR supply is staying the same. If prices are declining - EITHER supply is increasing OR demand is decreasing OR demand is staying the same. Which is it? Volume provides us a clue.

3 Volume Rising If Price is rising ii and dv Volume is rising, ii more transactions are taking place at higher prices (demand d > supply), this is Positive. i If Price is declining and Volume is rising, (supply ppy is outstripping demand), this is Negative.

4 Rising Price Declining Volume Erl Early in the uptrend, if price rises and volume declines, it may just mean the recent demand surge has abated, buy the dips Positive. Late in the uptrend, if price rises but volume declines, this may mean fewer buyers at higher prices, less demand, sell the rally - Negative (the Greater Fool Theory - last one to buy)!

5 Declining Price - Rising Volume Early in the down trend, if price declines and volume rises, supply has overcome demand, traders accepting lower prices -this can be Negative. Late in the down trend, dif price declines and volume rises, it may just mean weak hands have thrown in the towel often at or near the bottom OR short covering this can be Positive.

6 Exceptions: Volume Explosions Tops & Bottoms Heavy volume late in the uptrend can be Negative. Volume explosions at tops can be caused by the smart longs BOTH exiting their longs and going short. Heavy volume late in the downtrend can be Positive. Volume explosions at bottoms can be caused by the smart shorts BOTH covering their shorts and going long.

7 Volume-Oscillator Inputs: FastLength( th( 5), SlowLength( 21), Factor(2); Value1 = xaverage(volume, FastLength); Value2 = xaverage(volume, SlowLength); Value3 = Value1 - Value2; Plot1( Value3, "VolOsc" ); if Plot1 > 0 then SetPlotColor( 1, green ) else if Plot1 < 0 then SetPlotColor( 1, red ) ; if Volume > Volume[1] [] * Factor then SetPlotColor( 1, blue ) ;

8 Volume Rising If Price is rising & Volume is rising, more transactions are taking place at higher prices, demand > supply. This is Positive.

9 Volume Rising If Price is falling and Volume is rising, supply is outstripping demand. This is Negative.

10 Rising Price & Falling Volume Early in the uptrend, if price rises and volume declines, it may just mean the recent demand surge has abated, look to buy the dips. This is Positive.

11 Rising Price & Falling Volume Late in the uptrend, if price rises but volume declines, this may mean fewer buyers at higher prices, less demand, sell the rally (Greater Fool Theory -last one to buy)! This is Negative.

12 Declining Price & Rising Volume Early in a down trend, if price falls and Volume Rises, supply has overcome demand, traders accepting lower prices This is Negative.

13 Declining Price & Rising Volume Late in the down trend, if price declines and volume rises, it may just mean weak hands have thrown in the towel often at or near the bottom.. OR short covering.. This is Positive.

14 Exceptions: Volume Explosions At A Bottom Heavy volume late in a downtrend can be Positive. Volume explosions at bottoms can be caused by the smart shorts BOTH covering and going long. This is Positive.

15 Exceptions: Volume Explosions At A Top Heavy volume late in an uptrend can be Negative. Volume explosions at tops can be caused by the smart longs BOTH exiting longs and shorting. This is Negative.

16 Exceptions: Volume Explosions At A Top Heavy volume late in an uptrend can be Negative. Volume explosions at tops can be caused by the smart longs BOTH exiting longs and shorting. This is Negative.

17 Pulling It Together

18 S&P 500 Diamond Matrix

19 Nasdaq 100 Diamond Matrix

20 Nasdaq 100 Diamond Matrix