Multi-Million Dollar Trader Reveals Favorite Stock Market Analysis Tool
Master Wall Street insider swears under oath: this stock market tool is NOT illegal!
This is an incredible indicator used by none other than Steve Cohen. Cohen's firm, S.A.C., which derives its name from his initials, is a multi-billion dollar hedge fund company. His actual trading profits have averaged approximately 70 percent per year.
Over 50 stock traders work for him. He is a guru of following a stock's volume.
Most non-professional traders either overlook volume, or simply do not know how to use it correctly.
We all have holes in our learning. You need to read this article and make sure you plug the holes you might have in your learning of how to effectively use the volume indicator.
Think of each tick in the volume as a temporary meeting of two minds: a seller and a buyer. Shares or contracts that have exchanged hands are measured by volume. Volume is usually represented by a histogram bar. The volume reveals secret motives and psychology of bear traders as well as bulls. Increasing volume verifies trends while decreasing volume questions the longevity of the current trend.
As a stock sells off and falls, keep an eye on the volume. If the volume picks up into the downward move it means that fear has firmly gripped the crowd of traders trading your particular stock. Now notice the upticks and shallow buy orders every now and then. These are the rookie stock traders buying a downward move in hopes that the trend reverses and heads back up. We like these rookie traders. Why? In order for our sell order to execute, there has to be a buyer somewhere. But you need to know that buying into a downward trend is most often a bad idea. It is called trying to catch a falling knife. Never think you are smarter than the crowd by betting against them. The crowd always wins. Let some other rookie trader play that game. When all the sellers get out of a stock, the volume on the downside will fall off as the downward move runs out of steam.
In an uptrend, rising volume shows that greed is setting in as people dog pile into the stock. It also shows sellers dumping their position betting that the market is going to turn around. Remember, in order for a buy order to execute, there has to be a seller somewhere. Selling into an uptrend makes sense only if your original profit thesis (target) has been met. When all the buyers are done chasing the stock higher, the volume on the upside falls as the uptrend runs out of steam.
But volume tells more than just the conviction of the current trend. Volume gives traders several useful clues.
A spike in volume on 1 day often signals the beginning of a new trend when it occurs on a breakout from a trading range. A spike in volume like this can also signal the ending of a trend. Very high volume that is 300% or more of the average volume signals market hysteria. This is when fearful bulls finally decide that this uptrend is for real and rush in to buy or it is when fearful bears become convinced that a decline has no bottom and rush in to sell short.
Divergences between price and volume tend to occur at turning points.
When volume falls as prices rise, it means that the uptrend is attracting less interest. When volume falls while prices fall to a new low, it means that lower prices are attracting little interest and an upside reversal could happen at any time. Price is slightly more important than volume but millionaire traders analyze volume to figure out the psychology of the crowd before committing to a decision. - 23167
This is an incredible indicator used by none other than Steve Cohen. Cohen's firm, S.A.C., which derives its name from his initials, is a multi-billion dollar hedge fund company. His actual trading profits have averaged approximately 70 percent per year.
Over 50 stock traders work for him. He is a guru of following a stock's volume.
Most non-professional traders either overlook volume, or simply do not know how to use it correctly.
We all have holes in our learning. You need to read this article and make sure you plug the holes you might have in your learning of how to effectively use the volume indicator.
Think of each tick in the volume as a temporary meeting of two minds: a seller and a buyer. Shares or contracts that have exchanged hands are measured by volume. Volume is usually represented by a histogram bar. The volume reveals secret motives and psychology of bear traders as well as bulls. Increasing volume verifies trends while decreasing volume questions the longevity of the current trend.
As a stock sells off and falls, keep an eye on the volume. If the volume picks up into the downward move it means that fear has firmly gripped the crowd of traders trading your particular stock. Now notice the upticks and shallow buy orders every now and then. These are the rookie stock traders buying a downward move in hopes that the trend reverses and heads back up. We like these rookie traders. Why? In order for our sell order to execute, there has to be a buyer somewhere. But you need to know that buying into a downward trend is most often a bad idea. It is called trying to catch a falling knife. Never think you are smarter than the crowd by betting against them. The crowd always wins. Let some other rookie trader play that game. When all the sellers get out of a stock, the volume on the downside will fall off as the downward move runs out of steam.
In an uptrend, rising volume shows that greed is setting in as people dog pile into the stock. It also shows sellers dumping their position betting that the market is going to turn around. Remember, in order for a buy order to execute, there has to be a seller somewhere. Selling into an uptrend makes sense only if your original profit thesis (target) has been met. When all the buyers are done chasing the stock higher, the volume on the upside falls as the uptrend runs out of steam.
But volume tells more than just the conviction of the current trend. Volume gives traders several useful clues.
A spike in volume on 1 day often signals the beginning of a new trend when it occurs on a breakout from a trading range. A spike in volume like this can also signal the ending of a trend. Very high volume that is 300% or more of the average volume signals market hysteria. This is when fearful bulls finally decide that this uptrend is for real and rush in to buy or it is when fearful bears become convinced that a decline has no bottom and rush in to sell short.
Divergences between price and volume tend to occur at turning points.
When volume falls as prices rise, it means that the uptrend is attracting less interest. When volume falls while prices fall to a new low, it means that lower prices are attracting little interest and an upside reversal could happen at any time. Price is slightly more important than volume but millionaire traders analyze volume to figure out the psychology of the crowd before committing to a decision. - 23167
About the Author:
Written by Shawn Tilman. May this lesson help you better your trading and make a ton of cash. For more FREE master stock trading secrets and advice see stock market
posted by X - Men @ 4:25 AM
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