There are only a few real time stock market indicators that as a trader you must be aware of; they are price, pattern, time and volume. Let’s take a quick look into one of the most important and reveal how you should use it to your advantage…
One of the best real time indicators that a trader can follow is volume. There is a variety of ways to follow volume and I will share a few ways with you in this article. Volume in the capital markets is the total amount of shares or contracts of a security that was traded during a specific time. Traders will view volume on all different time-frames. Day traders may view the volume of an equity on an intra-day basis using a 1, 5, 10, 15 or 60 minute chart. Swing traders may use the volume of an equity on a daily and weekly basis. Longer term traders will likely look at monthly, quarterly, or yearly volume.
High volume reversals are often very meaningful. Most of the major bottoms in a market will usually occur on high volume. In fact, if you look at any major bottom or market low in the past ten years on the S&P 500 Index you will see heavy volume on the chart usually marked the low. This type of action occurs on all time-frames. Day traders also look for high volume reversals all the time for bottoms in stocks. This is why we often see a V-bottom pattern form when market lows are in place.
Unfortunately, market tops don’t always occur on higher volume, so picking tops using volume is more difficult to do. This is why there is usually a rounded or rolling top in the market or stocks before a major decline. Often, stocks will decline on heavy volume after earnings or some other news event, but this does not help traders catch that move. Either way, when a stock or equity declines on heavy volume it is a warning sign that the equity can trade lower. This is why all traders and investors should understand how to read charts. Understanding how to find major support / resistance levels will be critical when this happens.
Traders will usually watch for volume on breakouts and break-downs. When a stock breaks out or breaks down from a long sideways base on heavy volume it tells us that the move is just getting started. Breakouts or breakdowns on light volume often lack real conviction and potential follow through.
Traders and investors should follow volume on every stock or equity that they track or trade. Volume is a leading real time indicator. It tells traders so much each and every trading session. Traders can easily see and read the strength behind every market move with volume. This is a real time indicator that no trader can live without.
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