TechniTrader速 1 B101 Weekly Stock Review 082914
Why Price is No Longer the Most Important Indicator By Martha Stokes, CMT Stock Chart Analysis Should Not Be Limited To Just Price New investors and traders tend to go to the Internet to find information about stock trading. Often, they read many articles that were written decades ago or that use outdated theories and strategies. The information on the Internet is made up of mostly very old styles of investing and trading. Many new investors and traders believe that because a theory or concept has been around a long time, it has to be a good one. Unfortunately, the opposite is true. The market structure has changed dramatically since 2008, and every professional has been changing how they invest and trade as well. New investors and traders need a reliable place to receive current information that is relevant to our modern electronic marketplace, with the new regulations, etc., which will affect investments and trading short-term for monthly income. Older articles claim that price is the only part of the stock chart necessary to study. This is due to the fact that the original stock charts did not include volume, as it was not available to include this in the handwritten or manually-drawn stock charts. Only with the new charting software, which can include all 3 pieces of data, has volume become the standard all professionals use alongside price, even if they day-trade. One of the most important new facts that new investors and traders must face is that price is no longer the most important aspect of a stock chart. There are 3 pieces of data that come from the market for each stock transaction: Price, Time, and Quantity. In order to be consistently successful in the market, you need to learn how to use all 3 pieces of data in your stock-chart analysis. Quantity is defined in 2 ways: 1. The volume for that period of time, such as the volume for one day or one week for the stock. 2. The share-lot sizes traded for that period of time, aka one day, one week, and so on. Price reflects how much the stock moved up or down in relation to prior periods. The period setting on the example chart below is one day, which is the time for this data. This means you have price and time, but you do not yet have quantity.
TechniTraderÂŽ 2 B101 Weekly Stock Review 082914
Volume is a Stock Indicator that shows the volume, aka number of shares traded, each day or other time setting, such as each minute. It is the easiest of all the indicators to learn, and the MOST IMPORTANT indicator to learn, as it must be used in conjunction with price analysis. As a beginner, you should look at the current price activity of the day and the volume bars in a stock chart. Volume bars are the graphical representation of the total number of shares traded each day. There is always a buyer and a seller for each transaction; however, volume is the total number of shares that trade hands, so the buyer-seller interaction occurs in one share-lot transaction. As an example, if a buyer wants to buy 100 shares and a seller wants to sell 100 shares, the seller’s account has 100 shares removed, and the money is deposited into their broker account. This occurs when the order is executed and the buyer takes possession of the stock, paying for it via their online broker account. The volume for this transaction is 100 shares, which is the size of the lot for the transaction.
On the Chart above, first there are the candlesticks, which represent the price movement for each day. Each candle contains all of the price action for that day.
TechniTrader® 3 B101 Weekly Stock Review 082914
The red and green bars directly below the candlestick chart are the volume bars. Each volume bar represents one day of volume for that stock. The Volume bars are colored in order to assist in faster analysis. Down days color the volume bars red where the price of the stock moved down in relation to the prior day’s closing price. When price moves higher than the prior day’s close, then the color of the volume bar turns green. This chart shows a huge volume spike, which is a High Frequency Trading volume pattern, and the stock price “gapped” up at the market open due to the very high order volumes of the HFT. The last day on the chart to the right shows how the volume dropped as price moved up. This is because smaller-lot investors and smaller fund managers bought into the stock very late, after the HFTs forced the price up with high volume. A better entry would have been before the stock moved up on the green arrow day. The stock moved up out of a consolidation (narrow sideways price action) and had good volume, but not extreme spiking volume. This allowed traders to buy into the stock as it began moving up, but well ahead of the HFTs trying to front-run smaller traders. This is the kind of pattern traders who take TechniTrader Courses learn to recognize and enter. In order to be successful in today’s stock market, traders and investors must learn to analyze all 3 pieces of data in modern stock charts. Price, Time, and Quantity, all must be used in order to understand how the stock is likely to move in the near term.
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TechniTrader® 4 B101 Weekly Stock Review 082914
Trade Wisely, Martha Stokes CMT www.TechniTrader.com www.MarthaStokes.com Chartered Market Technician, Member of the MTA Master Rated Technical Analyst: Decisions Unlimited, Inc. Instructor & Developer of TechniTrader Stock Market Courses © 2014 Decisions Unlimited, Inc. DBA TechniTrader®. All rights reserved. Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.