Price vs Volume analysis in stock market

Price vs Volume analysis in stock market

If you find trading is stressful and emotion-driven job read this blog. After reading this blog you will trade will be based upon data rather than emotion. You will feel confident in your trading decisions and fess less stressful. If you trade without involving emotion you will get success in the stock market. After reading this blog you will use volume to validate the price action and predict the future price of the stock.

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Read this example of how Accumulation and distribution works in the stock market

1. Ram has a unique business in the city licensed by the government and he buys and sells his products from people and to the people of the city. This product has an intrinsic value which never erodes and it remains the same and increases overtimes.
2. But ram figures out a problem, he thinks if he always buys and sells the product at low margin how will he manage the other expense of his office.Ram says he need to act quickly and increase his profit margin.
3. Ram figure out a solution to this problem and think what would happen when he shares his product shortage problem to his friend. He knows his friend will tell everyone, it is equal to giving an advertisement on a news channel. He checks his warehouse assure himself he will fill all the demand.
4. On another day he meets his friend and shares his product shortage problem. After some days the sales of the product start increasing, people are buying in large quantities. He thinks his plan is working. He is very happy and his customer is also happy because the customer think the product will soon out of supply and price increase.Ram is happy because he is selling more and earning more money day by day.
5. After looking at the people demand for product ram decide to increase the price of the product. After increasing the price the demand for the product is not decreased because of missing out fear. People start buying even more quantities than earlier
6. This process continues for some time and after some time some of his customers start selling the product to ram at a higher price but ram doesn't care about it because he has large customer still buying the product at higher rates.
7. After selling all the product at higher rates ram looks back at his warehouse and finds he has very few products left in the warehouse.Ram is facing a problem if he sells all the product he will be out of the business soon.
8. He needs to get back his product from the people to run the business. Again he applied the same formula he tells his friend that the value of his product will decrease by 80% in the upcoming month because another company has the same product at cheaper rates.
9. People don't check the fact of another product news and after some days a large no of people arrives at ram Wearhouse to sell the product at 30% loss. Because the supply is greater ram decide to buy the product at 50% discount from the purchase.
10. People are ready to sell the product at 50% loss because of the fear of getting nothing after a few months.
11. As th price of the product falls furthermore people start coming in the warehouse to sell their product even at large loss.
12. Ram buys all the products from the peoples after the panic selling is over he starts to sell the product at the intrinsic value of the product and people again start buying the product because the product value is justified. 
13. Think How many times ram has done this in his business?
14. From the example, we can predict what is the reason for high volume when it increases when the stock price at an all-time high and when the stock price at an all-time low.

Learning from Price vs Volume analysis in stock market

1. In the stock market, there are only two leading indicators they are price and volume
2. If we analyze these two indicators separately it will not work for us but if we combine price-volume together and analyze it is the best leading indicator.
3. If stock move in any direction it should be supported by its volume. If Stock moves in uptrend or downtrend with low volume the reasons are different.
4. If the stock moves in uptrend or downtrend with high volume this is the signal of starting a new trend in the stock.
5. There are three stages of a trend. The first stage is called the accumulation phase - the second phase is called the public participation phase - the third stage is called the distribution phase.
6. Public participation phase is the longest phase and distribution phase stat when public start rushing into the stock market.
7. Smart money always does the opposite of the retail traders. When retail traders start buying stock smart money start selling the stock.
8. When retail traders start selling the stocks smart money start buying the stocks
9. So why retail traders always lose money? why smart money always makes money?
10. Retail traders follow the tv channels - expert advice- Brocker advice they are not familiar with the stock market industry how all these tv channels-brokers-experts are connected to each other. If you want to find visit this link
11. The volume and no of trade help us to find the smart money interest
12. Retail traders trade with low volume and no of trades are high but smart money trade with high volume and no of trades are low.
13. The law of demand and supply works perfectly in the stock market. When the demand is greater than the supply then the price will rise to meets the supply. When the supply is greater than demand the price will fall to absorb the demand.
14. The cause and effect principle suggests a small number of volume action effects  Small amount in price action. A large number of volume will affect the large price action. 
15. However, in-stock market standard rules not works. If volume action is small and price action is big the price action move will not sustain.
16. If the stock price  jumps 10% with low vlume it will retrace all its gain in upcoming days
17. If the stock price falls 10% with low volume if will gain its stock price in upcoming days
18. Volume suggests the participation interest.

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