Assessing Stock Price Trends Through Volume-Price Relationship: SNOW, ARM, and AAPL
The relationship between volume and price is the most important factor in judging stock trends. Here are a few examples to illustrate this:
1. When the stock price is in an uptrend, the trading volume remains relatively low. Why? Because there are no sellers, and there is a continual queue of buyers, demand exceeds supply which pushes up the stock price. However, the lack of sellers means that trading volume cannot be high.
2. When the stock price is in an uptrend, but the trading volume suddenly increases, why? Because those holding the stocks believe that the current price level is unsustainable for further upward movement and start to be willing to sell. Hence, the trading volume increases. Consequently, a sudden increase in trading volume during an uptrend could likely be a signal of a short-term trend reversal, something that history can attest to.
3. When the stock price is in a downtrend, the trading volume remains relatively low. Why? The reasoning is the same as the previous example. It is because there are no buyers, and sellers continuously place orders to sell, leading to an oversupply that causes the price to drop. The scarcity of buyers means that trading volume cannot be substantial.
4. When the stock price is in a downtrend, but the trading volume suddenly increases, why? This is because traders may believe that the price is likely at a bottom and are willing to buy in, which then increases the trading volume. Therefore, this too can be an indicator of a potential short-term trend reversal, a viewpoint that history can also support.
5. In the absence of a clear trend, or during consolidation periods, a sudden increase in trading volume can also signal the beginning of a new trend.
In other words, low trading volume in the short term may imply the continuation of the current trend, while high trading volume in the short term may indicate a reversal of the trend. This actually makes a lot of sense. Low trading volume suggests that there is a consensus in the market regarding the direction of the stock's movement (if everyone expects the price to rise, holders will naturally not sell; if everyone expects the price to fall, then, of course, there will be no buyers). On the other hand, high trading volume represents significant disagreement in the market (during an uptrend, some might believe the peak has been reached and begin selling, while others believe the peak is yet to come and continue buying). The shift from low to high trading volume signifies the market moving from consensus to divergence, and as a result, a change in the stock price trend is likely to occur.
Let's return to the actual trading environment and make a simple judgment using the logic we just discussed. $Snowflake (SNOW.US)$ may have found its bottom. The recent trading volume has increased relative to before, and the support level of $130 that was previously mentioned seems to have held. We might anticipate a minor rebound followed by a second bottoming process. It could be considered a potential entry point to establish a position.
$Arm Holdings (ARM.US)$ recent performance has been very strong, but the trading volume has not yet increased significantly. When the trading volume does expand, that could be an indication of a short-term peak, and a pullback may follow.
$Apple (AAPL.US)$ trading volume has been very high over the past couple of days. 2 days ago saw a breakout through resistance with increased volume, which should be considered as forming a short-term uptrend. However, immediately following that, yesterday showed another day of high volume accompanied by a long upper shadow. I believe there will be significant resistance today, and we will need to wait for the outcome of the battle between bulls and bears. I still think there is a greater likelihood that Apple's stock may decline (I hope I am not wrong again).
Peace.
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TA fan | People overreact all the time and the chart helps us make use of that
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AwNil : Very informative article