Stock Market Volume: How can you tell when volume is drying up for a breakout or a breakdown?
★ SUMMARY ★
How can you tell when volume is drying up for a breakout or a breakdown?
First, let’s take a look at what volume tells you. Volume basically tells you the energy of a stock move, and if a move is real. The more volume a stock has on a break, the more likely it is to stay above that break.
In this video, we’re going to analyze some stock charts and see this in real world examples and situations.
When you evaluate a stock and volume starts to pick up, the stock continues to explode higher. When you get a lot of buyers stepping in, that will push that stock to the upside. The more buyers, the more fuel that stock will have.
However, after a certain period of time, the stock price gets over extended and that stock is ready to pull back. Because we know stocks don’t go straight up. And when it starts to pull back, what happens? Volume starts picking up to the downside and the stock sells off.
Then it takes time for that sell off to reverse direction, but after a while, volume picks up and it starts coming back into the buying side. This is known as the rubber band effect, and it happens in all stocks.
In general, you’re just looking for overextended moves whether that’s to the downside or the upside. If you understand what is realistic, you will have a better idea of knowing when a stock will pause or reverse. Remember that stocks break out, pause, retrace and then move again whether that’s to the upside or downside.
Looking at multiple time frames will help you with this. You can also look at Bollinger bands as well to help you dictate or see where things are over extended.
Spotting price action simply takes time and practice. You need to take the time to look at charts, find trends, and see if you can predict stock movements based on volume, and with practice, you’ll get better and better.
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