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For instance, if a company know that they would release a very good news e.g. higher earnings for the quarter than expected, but traders have already anticipated this, then the price will not move up as you might expect. The smart money who were expecting positive sales results have already bought their shares prior to the announcement. This should have caused a rise in price for the reasons I stated above.
Take, for instance, at the bottom of the market, retailers would be selling as the market break lowers as they cannot afford to see their investment turn into dust. The end of the bottom is often called selling Climax -a situation characterized by the highest intensity of heavy selling occurring within a downtrend.
This condition marks the end or the approaching end of a particular downtrend. This panic selling creates an extreme expansion of the price spread and an expansion of the volume, this action may occur over one day or over several days. If it does NOT HAVE THIS IT IS NOT A SELLING CLIMAX.
What ever market event, the essential is knowing When, Where and Why an event happen......
THE TRUTH IS ALL MARKETS ARE MANIPULATED!!!
Most people incorrectly assume that trading or investing is all about understanding the fundamentals of the market or knowing the balance sheet of a company. It doesn’t have as much to do with that as it does with understanding people.
People’s perceptions or expectations of a company, or even the entire economy, are what drive prices of securities. Prices of equities, commodities, and currencies are all subject to the same laws of supply and demand as is any other product. In fact, this is why you will often see prices drop after a company meets expectations for an announcement.
Insiders buying or professional buying and selling makes up 80-90% of the trading volume. So when they are not present in the market, why should you. Professionals or smart money has more resources and $$$ to access company information prior being released to the public.
Doesn't it make sense to follow the smart money ?
The demand for the shares prior to the release overwhelmed the supply. Insider sellers realized this and raised their prices they were asking for shares. Retail Buyers, in a desperate attempt to own shares, will raise the amount they are willing to pay for them. Smart money buy on wholesale and sell it at retail prices to the average Joe Investor.
For instance, if a company know that they would release a very good news e.g. higher earnings for the quarter than expected, but traders have already anticipated this, then the price will not move up as you might expect. The smart money who were expecting positive sales results have already bought their shares prior to the announcement. This should have caused a rise in price for the reasons I stated above.
Once the data is known by everyone and there is no surprise, some buying may come in. However, the insiders who already own shares are disappointed that the price isn’t rising more, or they are satisfied with their profits and begin to sell slowly – distributing at the top of the market – area of distribution according to R. Wyckoff of which Tom Williams refined Wyckoff Trading method for today’s market environment .
Without increased selling pressure from smart money, these sellers must buy their price in smaller quantity to attract more retail buyers to take their shares.
So, you see how human emotion, basically fear and greed, will motivate retailers,traders or investor to act in the market. This is what causes price spread dominated by trading volume. Price charts with volume never tell lies. Human does !
So to be successful in trading, you need to know how to read this emotion and the strength of it. That is what volume spread analysis or price and volume does. The charts show us the actions of the traders who are involved in that security. In looking at candlesticks , we can read the strength of the emotion of those who will move the markets. For more information on how to learn about price and volume analysis. Call or sms me at 012-3278718
We can see when this emotion is shifting and leading market turns.
Take, for instance, at the bottom of the market, retailers would be selling as the market break lowers as they cannot afford to see their investment turn into dust. The end of the bottom is often called selling Climax -a situation characterized by the highest intensity of heavy selling occurring within a downtrend.
This situation occurs only after a downtrend has been in effect for some time like what we had in late 2008 – Mar 2009.
This condition marks the end or the approaching end of a particular downtrend. This panic selling creates an extreme expansion of the price spread and an expansion of the volume, this action may occur over one day or over several days. If it does NOT HAVE THIS IT IS NOT A SELLING CLIMAX.
So by viewing price spread and daily volume’s actions in a candlestick chart, we can make assumptions about the strength of the movement of the stock price. These observations are part of our decision-making process to time proper entries and exits in the market. That is what volume & spread analysis (VSA) can offer you as a trader or investor.
Have a great day!!
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