DON'T FORGET TO GIVE DUE ADHERENCE TO VOLUMES WHILE ANALYSING A STOCK
DON'T FORGET TO GIVE DUE ADHERENCE TO VOLUMES WHILE ANALYSING A STOCK
Data analysis, candlestick patterns, chart patterns and indicators are the basic ingredients which have to be followed up in technical analysis before considering any stock. But don't forget to pay due heed to volumes as well!! Volume is the other key ingredient which can falsify your prediction with regard to a particular stock.
Volumes are nothing but it is the total number of shares or contracts that are traded over a particular time interval. More the volume, the higher is the activeness in a security and consecutively higher is the momentum. Volumes play a major role in the formation of the chart patterns and confirming their upcoming break out. Suppose if a Head & Shoulders' pattern has been formed and if a breakout coupled with a white candle formation and higher volumes takes place, then it is a genuine break out or else the stock is expected to resume its initial range and the breakout is a fictitious one.
Similar was the case with "SHASUN DRUGS AND CHEMICALS LIMITED". The stock was consistently moving down for 3 consecutive trading sessions and was expected to get close to its 20 DMA. But the volumes were weak when the last candle formation took place and the later session witnessed with the reversal in the movement of the stock. If I would have paid heed to the volumes then I would have ignored that stock or would have at least kept that stock for future reference. All chart patterns, candlesticks; indicators went awry because of the volumes. I realized what a major significance these volumes have in determining the likely movement of the stocks.
I came out with some conclusions relative to the volumes which I would like to discuss with the traders while trading.
If prices are moving upwards supported by the consistent increase in volumes, the stock is expected to be in a bullish phase. But if the trend is up but the volumes are diminishing, an uptrend is expected to have been fading away. Volumes have a major role to play in determining the trend reversals.
Volumes grants conformity to the genuineness of the chart patterns.
Volumes precede the prices.
Follow these mantras while trading and you will be on a safer side.