Why the volume-based trading system is not reliable?
In the stock market volume represent a number of unit share change hands for stocks or futures contract over a specific time period. Volume breakout trading system is very popular in the stock market but it can be a loss-making trading system for you if you use only volume parameters for trading or investing.
These are the factors which make a volume-based trading system not reliable for trading or investing.
1. Generally, volume breakout happens after positive or negative news flow in the stocks. This news can be real news or fake news no one checks the quality of news which leads to the large volume in the stock. It provides exit routes for big investors by some positive news flow.
2. Volume is not an indicator because it is not based upon any calculation of data points. Volume only represents a number of unit share change hands for stocks.
2. Volume is not an indicator because it is not based upon any calculation of data points. Volume only represents a number of unit share change hands for stocks.
3. Volume breakout trading system is not a leading indicator. It is a lagging indicator.
4. Volume only represents the interest of investors. It can be positive or it can be negative. We need to verify it before invest or trade.
5. Volume breakout trading system represents the movement in the stock. We need to validate the movement whether is sustainable or not before the trade.
6. Big investors never trade a large quantity in a single day. So any rise in volume does not guarantee us that big player is buying the stocks.
7. Low volume doesn't mean the change in trend. It generally happens when there is less interest of the investors.
8. In an uptrend if the huge volume appears on the stock price spread is small it is the sign of the reversal
Option chain volume analysis
8. In an uptrend if the huge volume appears on the stock price spread is small it is the sign of the reversal
Option chain volume analysis
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2 Comments
Thank I have been reading your blogs and its quite simple and interesting.
ReplyDeleteCould you please make me undertand how to idenitfy speculative position built up can you write a blog on it. I have seen Nitin Ji video on his channel
I want to understand how to know if put contracts or IV is increasing because option chain is not recordable. By the time we identify speculative trade and start recording option chain and IV we may miss the buss.
Really grate-full to you.
If you need nifty option chain implied volatility excel sheet check this link and download the excel sheet both weekly and monthly. https://stockfuturesnse.blogspot.com/2019/08/premium-decay-analysis-excel-sheet.html
DeleteIf you want to know why iv increase or decreases check this link : https://stockfuturesnse.blogspot.com/2019/09/why-implied-volatility-increase.html
Thank you for your valuable comment