12.8. Price And Volume Analysis
- Dow Theory. Prices move in major, intermediate and short-term trends. Followers are hoping to identify the major trends. A major upward trend may be broken by intermediate downward trends but if each peak was higher than the last and upward moves are accompanied by high volumes this would be seen as a bullish signal.
- Support and resistance levels are useful in determining price trends. A support level is the price range at which a substantial increase in demand for the stock is expected which will reverse a declining trend. A resistance level is the price range at which a substantial increase in supply of the stock is expected which will reverse a rising trend.
- Moving-average lines. When moving-average lines cross, it can signal a reversal in trend.
- Relative strength. Technicians believe that if a stock or industry is outperforming the market it will tend to continue to do so.
Analysts who are looking for repetition of past trends often use charts; the charts used include bar charts and point-and-figure charts.
Technical analysis of bond markets
Similar trading rules used for bonds are used in equity markets. One problem with bonds is that, since trading is mainly OTC, volume data is not available.
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