Basic Volume Theory

Basic Volume theory includes the following maxims:

* Increasing Volume with an advance is Bullish

* Decreasing Volume with a decline is Bullish

* Increasing Volume with a decline is Bearish

* Decreasing Volume with an advance is Bearish

* A Market Top is imminent when heavy volumes occurs with little or No Gain in the averages.

* Heavy Volume confirms the direction of price breakouts from a Support or Resistance Zones.

* An increase on heavy volumes after a previous substantial rally signals a "Blow Off" with an impending to a Reversal approaching.

* Heavy Volumes accompanied by an accelerating drop in prices confirms a "Selling Climax" and impending price reversal after the panic selling subsides.

* Low volume periods after upward price reversals reflect a Consolidation Phase before resumption of the Upward Movement.

In the science of Technical Analysis, Volume plays a role which is as important as any other basic indicator. An increase in the volume in conjunction with Stock price moves adds strength and momentum in the direction of the move. It reflects the market's confidence that the uptrend will continue in force, or its pessimism that the downtrend will.

For the market, declining volumes as the market rises is supposed to warn the end of a  BULL MARKET.

Likewise, sharp increase in volumes resulting in Selling Climax, signals the end of a BEAR MARKET.

An increase in abnormal volume can alert investors to coming price movements, Up or Down, before it becomes obvious to the overall market. Therefore, the market axiom "Volumes Precedes Price".

Historically, the majority of  BULL MARKETS have originated with at least two days within two-month period where upside volume is at least nine times greater than the downside volume. Investors who track volume and spot the two-day Exceptional Upside Indicator can out-maneuver other investors and earn excess returns by positioning themselves for the coming Bull Market.

The Daily Volume Indicator measures extremes in the Supply/ Demand relationship. If a Stock closes at the mid point of its trading range for the day, the indicator reflects no change. Closing Price above or below the trading range midpoint show an increase or decrease in the Daily Volume Indicator, respectively.

In constructing the Daily Volume Indicators, Technical Analysts take into account the day's volume, closing price, Distance between closing Price and the mid point, and the Trading Range.

These are just the basic characteristics of the Volumes, these must be read in conjunction with other commonly used indicators before drawing up any conclusion.

Source: Importance of Value in Technical Analysis - http://www.stocklinedirect.com

The Parable of the Mexican Fisherman and the Banker

An American investment banker was taking a much-needed vacation in a small coastal Mexican village when a small boat with just one fisherman docked. The boat had several large, fresh fish in it.

The investment banker was impressed by the quality of the fish and asked the Mexican how long it took to catch them.

The Mexican replied, “Only a little while.”

The banker then asked why he didn't stay out longer and catch more fish?

The Mexican fisherman replied he had enough to support his family's immediate needs.

The American then asked “But what do you do with the rest of your time?”

The Mexican fisherman replied, “I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip wine and play guitar with my amigos: I have a full and busy life, señor.”

The investment banker scoffed, “I am an Ivy League MBA, and I could help you. You could spend more time fishing and with the proceeds buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats until eventually you would have a whole fleet of fishing boats. Instead of selling your catch to the middleman you could sell directly to the processor, eventually opening your own cannery. You could control the product, processing and distribution.”

Then he added, “Of course, you would need to leave this small coastal fishing village and move to Mexico City where you would run your growing enterprise.”

The Mexican fisherman asked, “But señor, how long will this all take?”

To which the American replied, “15-20 years.”

“But what then?” asked the Mexican.

The American laughed and said, “That's the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You could make millions.”

“Millions, señor? Then what?”

To which the investment banker replied, “Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”

I love this simple parable.

It brings clarity to what the money game is all about… and definitely not about.

It brilliantly illustrates the illusions we so easily fall into when pursuing wealth and financial freedom. It's far too easy to build incessantly and forget the end game is happiness and a fulfilling life.

It's equally easy to forget all the goodness we're surrounded by today.

The truth is, it doesn't take a lot of money to have a truly wealthy life, but it does take freedom.

Source: https://financialmentor.com/

Quote for the day

“Never value the valueless. The trick is to know how to recognize it.”– Sidney Madwed