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Charting Asia
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Market volume is very significant in short-term trading. The relationship between price and volume provides a guide to the type of buying or selling activity that is developing. Charting Asia presents the second installment of a four-part special that looks into the price/volume dynamic.
In the last column, we looked at the trading game of Pump & Dump. This edition looks at the trading game of Hide and Seek.
Hide and Seek is when an investor tries to build a large position in a stock without causing the price to rise. Basically, this kind of volume activity is the genuine accumulation of a stock for long-term holdings.
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Recognition rules
· Volume increases slowly. This is steady, consistent buying
· Buying volume is larger than selling volume
· Price moves in a consolidation band and price rise is slow
· The new trend is defined with a trend line and there are many successful tests of the trend line
· Volume remains steady when the price falls. This shows investors are buyers. Confirm this with the GMMA indicator.
Trading rules
· Buy as price rebounds from the lower edge of the consolidation area
· When trend is defined with a trend line, buy when price rebounds from the trend line
· Use the lower edge of the long term GMMA as a stop loss
· Enter when price moves above the downtrend line
· Add to position when GMMA crossover develops
· Add to position after the first successful test of the long term GMMA support after the GMMA crossover.
Recognizing the correct price and volume relationship allows traders to make a better decision about the best trading or investment approach to use for the trade.
For more detailed discussion of using volume in trading, click here.
In the next column which will be published on Tuesday, we show how charts can help you Catch the Rally.
The Games Traders Play
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