Who Moves My Market? - Part 5

http://createwealth8888.blogspot.com/2009/11/who-moves-my-market-part-4.html

Price and Volume Action -The Importance of Volume


Why do we buy and sell?


There are only two reasons to buy:

1. Price will stop falling
2. Short covering


There are four reasons to sell:

1. Profit taking
2. Force selling
3. Cut losses
4. Short selling


Price of the stock is telling us what is happening to the stock, but volume tells us how it is happening. Volume reflects the sentiment of buyers and sellers and it then drives the price up or down.


A price rises on heavy volume means buyers exhaust the sellers and buyers are pushing the price higher as they fear of missing out. Likewise, a price declines on heavy volume means sellers exhaust the buyers and the sellers are pushing the price lower as they fear of further losses or fear of losing profit.

Why heavy selling or heavy buying? That is our job to think over it and decide whether we want to join in the action or not?

Another important reason is that technical analysis on charts on low volume stock may be unreliable and so don't try to analyse too much and mislead yourself.