The Importance of Rising and Falling Stock Volume Patterns
Stock Volume provides easy-to-read information regarding the liquidity for a stock at a particular time. Falling stock Volume often precedes the slip slide action when Price falls, not due to profit taking or selling short, but simply because there are insufficient buyers at the time to sustain Price.
See the chart example below.
With the advent of the new Securities and Exchange Commission (SEC) pilot program designed to test wider spreads on thousands of stocks to see if the wider spread would provide more liquidity, watching stock Volume has become even more important than ever before. Mostly small cap stocks benefited from the wider spread testing.
Big blue-chip stocks can also suffer from very low liquidity at times, which can create anomalies and alter short-term runs, often surprising the Retail Trader who is expecting a run to continue moving upward.
Buy Side Institutions’ influence on Price and stock Volume is due to their Dark Pool Quiet Accumulation over time and their bulk of stock Volume activity. However, when there is uncertainty, these Giant Funds will cease their buying and wait. They can be patient for extended periods of time sitting on the sidelines waiting to see how the other Professional Stock Market Participant Groups, the Smaller Funds, and the Retail Traders behave.
Buy Side Institutions use custom routing with Alternative Trading System (ATS) venues creating Dark Pools.
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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