Share Market

Reading a stock quote is important in the sense that one must give importance to both the volume and price provides little real information about a stock. As one needs to look at the price change compared to the volume that day. If the stock trades on heavy volume and the price are increasing, the trading that day is buy dominated and shows that investors were willing to pay higher and higher prices for the stock. If the stock trades on heavy volume and the price decreases, then the trading that day is sell dominated meaning sellers are trying very hard to get rid of their stocks selling for lower and lower prices. If volume is high without an appreciable change in price, it could be a sign of a turn around in a stock’s current price movement.

This is known as churning and is a sign that investors cannot really figure out what the price of the stock should be – i.e. whether or not it should continue to move upwards (if there is an upward trend) or whether or not it should continue to move downwards, in case, if it is a downward trend.

The basic idea behind volume is that it is a way of being able to accumulation or distribution of the stock during trading. That is, are investors buying (accumulating) or selling (distributing) the stock that day. To do this, one must look.

Beside from looking for above average volume days, price and volume can be used together in a plethora of other ways. There is a whole branch of stock analysis, which is known as technical analysis and specifically volume and price patterning that is based on the idea that certain chart patterns can be found in all stock movements when looking at price and volume charts.

The use of these patterns can then be used to predict future stock price movement. Some basic things to keep in mind while trying to value some stocks right now are:

• Stocks that are making big gains with low volume or non-increasing volume are a signal that the gains are not going to continue for long so don’t buy into the hype.

• Similarly, price declines on low volume are often a sign of people who are weakly holding their position selling off and one can assume either a rebound or flattening out of the price chart is going to follow after those investors have sold their holdings.

• After a period of relatively stable prices (3 months+), a large price gain on high volume can be a sign that the stock is on its way to new heights – this is known as a break out.

This now ends our basic look at Reading a Stock Quote. At this point, we are able to make some decently well informed guesses as to the general value of a given stock and its current trends (up or down) with respect to its price and trading interest (volume accumulation/distribution). It’s not all the information that is necessary to make consistently winning stock picks, but it is a solid foundation from which to begin experimenting with making some stock picks and tracking their performance which I do recommend to anyone interested in beginning to invest.