This is an excerpt from the Liberated Stock Trader Academy Book and Training Course. Chapter 9, Section 2. This section covers everything you need to know about how to interpret Volume and Price Volume Indicators, such as Money Flow, On Balance Volume, Time Segmented Volume & Cumulative Moneystream.
The Price Volume Relationship
There are some essential characteristics of volume and price in the marketplace.
Price Up–Volume Up (PUVU) Price moving up on increased volume. This is bullish as it shows us that more participants are interested in selling the stock at higher prices and that, most importantly, more people are interested in buying the stock at those higher prices. In an uptrend, this signals the trend will continue; in a downtrend, this signals a possible correction or change in the trend’s short-term direction to upwards.
Price Up-Volume Down (PUVD) in an uptrend is very bearish as it suggests that although prices are rising, there are fewer participants suggesting people are backing away from the higher prices. This also infers that the trend is weakening. In a downtrend, it indicates a continuance of the downtrend.
Price Down–Volume Up (PDVU) in a downtrend may signal that a change in trend is likely; as we saw with the “Blow off bottom,” there might be a huge selling climax, then the trend adjusts from down to sideways or down to up. This may indicate a crisis, panic selling, or simply when a stock is going out of favor in an uptrend. The pressure is on the sell-side, and to sell, they have to accept lower prices. A robust negative signal!
Price Down–Volume Down (PDVD) in a downtrend can suggest that the retreat is slowing or beginning to end as fewer people are interested in buying or selling the stock at these prices. In an uptrend, this may indicate the stock is stopping for breath or due to a pullback before continuing on its upward trajectory. Volume tends to trend in the same direction as the price trend. Hence, PDVD also suggests a continuation of the primary downtrend or a pullback and a possible continuation of an uptrend.
So you see not only the price but the direction of both price and volume is essential. This is where the Price Volume Indicators play an important role.
Other Chapters of the Liberated Stock Trader Book are listed below
Chapter 1 – Essential Stock Market Knowledge – Fundamentals
This chapter sets the stage for the two key areas of stock market technical analysis and the fundamental analysis of companies including macro and microeconomics
Chapter 2 – What Really Moves Markets - Why do Booms and Busts Occur?
This chapter looks at what REALLY makes the markets move, what causes boom and bust cycles, and how to spot them.
Chapter 3 – How do markets move ? - Stock Market Cycles – Business & Economic Cycles – Kondratieff to Kuznets
What are stock market cycles and the cycles of business and economies? Important information that you need to appreciate as part of your core analysis.
Chapter 4 – Is the Company in great shape – P/E Ratio
Next we move into fundamental analysis and the financial fitness of a company. All the major indicators and measures are covered.
Chapter 5 – How to find the best stocks
Stock screening means using criteria to shortlist the kind of stock that you want to purchase. A vital part of any stock market training
Chapter 6 – Chart Reading made easy - Japanese Candlesticks – Bullish Reversal Patterns
Once you know the business climate, the state of the economy and you have shortlisted the stocks you want to buy. The next thing to do is the technical analysis. Even if the company looks great on paper, if the stock price is plummeting you do not want to buy it until it has bottomed out. This is called catching a falling knife. This is what chart patterns and technical analysis help with.
Chapter 7 – Trend Lines and Price Patterns - How to draw trend lines
Here we get into the art of drawing on charts to help you visualize the Supply and Demand on the stock, the direction of the trend, and estimate how long the trend will last. Vital for you to establish buy and sell signals.
Chapter 8 – Chart Indicators are your friends! – ROC Rate of Change Indicator
Which indicators should you use, there are literally hundreds of stock chart indicators? Each has a specific use case and application, which should you use?
Chapter 9 – Chart Indicators Volume - The Price Volume Relationship
Volume is a vital indicator along with the price. Both of these you need to understand in granular detail, you will learn everything you need to know.
Chapter 10 - Advanced Stock Charting Techniques Parabolic SAR
Moving to advanced technical analysis we cover indicators such as parabolic SAR and point & figure charts.
Chapter 11 - Sentiment Indicators & Trading the News - How to trade the news
How are the market participants feeling? Positive, Negative, or indifferent. Consider that 90% of people fail to beat the average market returns, sentiment indicators can be a great contrary indicator. Learn how to use them to your advantage.
Chapter 12 - Trading Strategy - What type Of Investor are you?
Understanding how you want to invest, how much time you have, and your time horizon. These questions all help you to understand what type of investor you want to be, this then enables you to select the right strategy for you. Then we move on to building your stock investing system, a critical element to your plan.
Hi Barry, Great article!
Can you clarify:
1) Does “price up” mean at least a few few candles with higher highs or could that also mean a single green candle that closed higher than opening?
2) For this context, can you define “up trend”? Can that refer to the immediate trend or larger trend?
Thank you so much for this contribution!
1. Yes, price up means the price has moved higher, one or more candles. If you are looking at a daily chart then price closing higher than the previous close is a powerful “Gap up” for example. take a look here https://www.liberatedstocktrader.com/stock-market-trend/
2. this might help – how to draw trendlines
Types of Stock Trend Time-Frames:
Short Term: Days to weeks
Medium Term: Weeks to months
Long Term: Months to years
Hi Deepak, I wrote an article on your question, I hope you like it.
Dear Mr. Bhatia and All,
In Share market there is one proverb “How to make million from the stoke trade?
Answer is “Start with Billion…”
For small investors, I strongly advise to put money in good share for atleast 3 years otherwise your broker will be making money from you.
i have read about volume and other tools , which u mentioned abov. but fact is that , in share market i can not believe any single tool. bcoz i learnt this course last year . since then i have been trying and hard working to learn technical course , i cheked many tools of it but not useful till now. so sir my request to u that u may provide any one techniq or tools by which i can earn some mony . bcoz i lost much money in share market and so on. i m waiting ur rply sir .
you are very talented.