Importance of volume in investment decision
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- Every market has two participants know as wholesalers and retailers.
- Wholesaler tries to buy the product when it is available at a lower price than usual. He only invests his money when he is sure he can sell the product at a higher cost to the retail buyers.
- Now think how this applies in the stock market. In stock market wholesalers are FII - pension funds - banks - institution investors.
- Wholesalers always trade-in large quantities they only buy when they feel the prices are lower than historical prices and we can sell the stock to the retail trader at a higher cost to generate profits.
- Wholesalers buy the stock when there is panic in the stock market and stocks are available at cheaper prices.
- In the bear phase of market if high volume appears in stock.
- This is the buying phase of FII and volume is usually high because they are buying in large quantities from the retail traders
- Retail traders who think the market is in bear phase and volume is increasing the stock price will fall more. why they think so?
- Because stock market educators or news channels tell retail investors when the market in bear phase and high volume appears in stock price will fall more.
- Why stock market educators or news channels tell this to retail traders?
- Because they are commissioned by the wholesalers
- So why wholesalers give commission to the news channels and stock market gurus?
- Because they want to buy the stock at a lower price from the retail traders.
- They want to buy all the floating stock in the market and increase the stock price later and sell them back to retail traders with the help of news channels and stock market educators.
- So what retail traders need to do?
- Don't follow the news channels recommendation
- Don't follow the stock market expert advice
- Read the books test the learning and then trade
- What causes bull and bear market
- Smart money vs Dumb money in the Stock market
- Working principle of stock market
4 Comments
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