Bob Brinker's Marketimer

  Wednesday September 26, 2018

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Everyone wants to participate in a stock market rally, just as everyone wants to avoid a stock market crash. The volume of trading provides a signal to investors regarding the possible future course of the market.

Increasing volume is often an indication that prices in the overall stock market will increase in the future. Many onlookers interpret increases in stock prices and volume at the same time to be an even greater bullish signal. On the other hand, decreasing volume is said to be an indication that stock prices will fall in the future. A combination of falling stock prices and volume is often seen as a bearish signal for future stock prices. Many investors actively follow market volume to identify potential signals that might provide clues to future price movements of the overall market. They try to time the market, selling stock before the onset of a bear market and buying stock at the beginning of a bull market.

Other signals that some investors look for are buying and selling climaxes.

A buying climax occurs at the height of a bull market. It is marked by a gradual decrease in the rate of price appreciation in the stock market combined with a rapid rise in market volume. This is a potential signal that a bear market is upcoming.

A selling climax occurs when the decline in stock prices increases dramatically in conjunction with a big increase in volume. A selling climax usually occurs at the end of a bear market and thus signals investors that a bull market may be on the way.

Volume can provide many signals to investors about the future direction of the stock market. To better understand these signals, an index was created. In the next section, you will learn about the Short-Term Trading Index.


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