Stock Volume Explained: Using 4 Top Volume Indicators
This suggests that the retreat is slowing or beginning to end in a downtrend as fewer people are interested in buying or selling the stock at these prices. In an uptrend, this may indicate the stock is stopping for a breath or due to a pullback before continuing on its upward trajectory. Volume tends to trend in the same direction as the price trend, so PDVD also suggests a continuation of the main downtrend or a pullback and a possible continuation of an uptrend.
- The correction or the pullback doesn’t have to be a full correction.
- Past performance is not necessarily indicative of future returns.
- Most experienced traders wait on the sidelines just watching the drama unfold and waiting for the right time.
- Although it means losing out on some profits, it is wise to make sure that the blow off is well underway before staking real money trades.
- You will be pleasantly surprised to see how easy it is to identify when a market has reached a point where she needs to take a breather.
The top lasted from May 11th, when it peaked at $4330, till May 14th, when it quickly declined to $2400. By May 18th (highest volume day) to where it stood in June 2021 at just over $1700 with only a few bumps. The asset will either have gained over 79% with no retracement, risen for six months or more, or risen over 100% and up to 500% or more. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealer or an investment adviser.
Final Thoughts on Blow Off Tops
This is usually caused by many investors buying a stock simultaneously, which drives the price up quickly and dramatically. Keep in mind, the prospect of a blow-off top cannot be adequately predicted—such is the nature of any phenomenon that can be observed only retroactively. Experts therefore advise investors to work with a financial adviser to consider some hedging actions to limit losses. For example, the Russell 2000 hit a peak at the end of August 2018 and then a secondary one in December 2019 that was down almost 4% from the previous one. If you are trading momentum stocks, a.k.a high volatility stocks, you will easily make 20% to 50% on the bounce move.
News
You were totally jazzed about the idea of buying a stock that felt like it could run to the moon. I figured I would highlight this scenario first as it’s the worst position you can find yourself in. Notice how the IWM in early March was experiencing significant weakness after the first break of the trend line back in February 2014. Because blow-off tops are so violent, it’s best to allow the 5 events I will describe in this article to play out before jumping into the stock. In this article, I will cover 5 ways to identify that a stock has had a blow-off top.
In the chart, this note shows that the price “Gapped Up.” What does this mean? The term “blow off bottom” derives from the idea that the price had been going down but suddenly “blew off” due to the large amounts of buying. The blow-off bottom is often seen near the https://bigbostrade.com/ end of a long-term downtrend and can be used by traders to indicate that a market may be about to reverse its trend. On average, in 2022, 50 billion stocks were traded monthly, and the total number of shares traded was over 650 billion for the S&P 500 index.
The Difference Between a Blow-Off Top and a Swing High
When trading activity drops, it could indicate a decrease in interest in the stock. Volume is important to traders and investors because it can identify potential breakouts or breakdowns in a security’s price and help confirm technical patterns on a chart. Stock volume, or trading volume, is the total number of shares traded during a specific period.
These patterns often come after a period of strong earnings performance, making them all the more deceptive. Understanding them involves more than just staring at charts; it requires a deep dive into market research, reviews of past scenarios, and even tax implications for your trades. For example, fewer people buy at a higher price if the stock price increases and the volume decreases. This means a change in demand and a potential change in the direction of the stock price. If traders have misidentified a blow-off top, or traded it wrong, it’s often best to exit the position early on to avoid becoming a bag holder. Going short too early in a blow-off can mean extremely large losses if the loss isn’t cut quickly.
This permits many bubbles to grow unchecked, at least until something gives. Trading against a bubble when it is in full swing is very risky. A radical new technology, product or an emerging economy, think China for example. For example, a common blow-off top pattern occurs when a pharmaceutical company announces the results of a pivotal clinical trial.
“Blow-off tops are often only clear in retrospect, and it’s hard to judge when the big run higher is going to end,” Russell said. ” If a stock is going to tank, that doesn’t have anything to do with the broad market. Looking back at the PLUG example, notice how the volume exploded on the blow-off top day. Also, notice how the average daily volume began to increase as PLUG pulled back to the $3 to $4 dollar range.
Does high volume increase the stock price?
It is commonly seen as the culmination of a long uptrend and signals a reversal. This phenomenon is something traders and investors watch closely, as it typically involves significant selling pressure during the pullback phase. Low volume in stocks indicates little interest from traders and investors.
A strong rally may rise at a 45-degree angle, but in a blow-off forex trading strategies for beginners situation the angle of ascent is almost vertical.
However, we see a monster, Blow off Top, the huge red Spike; this is a powerful sign to sell as soon as possible. In short, a stock’s volume is the number of shares exchanged between a buyer and a seller. Stock volume is the count of shares traded, not the dollar value of the shares exchanged. “Right now, we’re at 18.5 times forward earnings, which is really, really expensive on the S&P 500,” Phipps said.
A blow-off top is a market phenomenon where there’s a sudden and sharp rise in stock prices, commodities, or other securities, followed by a drastic decline. This is often the result of speculative trading and can be a strong indicator that a particular asset has peaked. Traders and investors alike should be cautious when they see this pattern forming, as it often precedes a market downturn. A blow-off top is a chart pattern that indicates a steep and rapid increase in a security’s price and trading volume followed by a steep and rapid drop in price and volume. The rapid changes indicated by a blow-off top, also called a blow-off move or exhaustion move, can be the result of actual news or pure speculation.