Find a Good
Stock to Invest
Through Volume Analysis
How do you find a good stock to invest? There are many ways to do that. One of the easiest way is through volume analysis. Remember in the previous page we talk about why professionals always look at volume?
Volume is a key to spotting huge price moves before it happens
Volume signifies an interest in a stock. If the trading volume in a stock is low, it means not many people are interested in that stock. When you see a significant jump in volume, there is usually something going on in that stock. Otherwise, people would not be interested in it and buy the stock.
One of the ways you can find a good stock to invest is to look for a stock which has experienced an increase of volume by more than 100%. This is especially the case if the increase in volume happens over a period of time. A few weeks to a few months.
When this happens, it indicates that there may be large institutional buyers who are accumulating shares in the company. Therefore, if you see a significant increase in volume, pay special attention to that stock. It may be the next big winner.
I will go into more detail on how to do that in the Strategies Section.
Climactic volume may signal a reversal in price
Have you seen a stock go down and down in price and then all of a sudden it seems to bounce back up? Well, what you have seen is what we call a panic selling.
When a stock drops in price drastically on a climactic volume, it may signal a short term reversal. This is because everybody who wants to sell the stock has already sold their shares. When that happens, there is nobody else to push the price further down. So, the price bounces up in the short term.
This can be a great opportunity to enter into a stock and make a quick profit. To do that, we need to combine it with other analysis. Don't worry, when you have gone through the other articles, you will know the entry criterias to look for.
The same thing can also happen when a stock rises up drastically on climactic volume. If you see that, it often indicates the current uptrend may soon slow or reverse.
This is because everybody who wants to buy the stock has already committed their money into the stock. When that happens, who else is left to buy the stock and push the price up? Thus, the stock is ripe for a reversal, or at the very least the stock may slow down.
What this means is you should start taking your profits and don't buy the stock anymore until a better time. On the other hand, this can be a great opportunity for the savvy trader to sell short the stock and make a quick profit.
So you now have an idea of how to find a good stock to invest as well as how to avoid buying it at the wrong time.
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