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Saturday, August 29, 2009

Multi-Million Dollar Trader Reveals Favorite Stock Market Analysis Tool

By Shawn Tilman

Ready to learn how to ethically steal TONS of money from other stock market traders with this one indicator?

This money pulling indicator is used by billion dollar hedge fund traders like Steve Cohen who's firm has average over 40% a year!

He has some 60 traders working for him. He is a master of watching a stock's volume.

More amateur traders overlook volume than any other technical indicator.

We all have holes in our learning. You need to read this article and make sure you plug the holes you might have in your learning of how to effectively use the volume indicator.

Think of each tick in the volume as a temporary meeting of two minds: a seller and a buyer. Shares or contracts that have exchanged hands are measured by volume. Volume is usually represented by a histogram bar. The volume reveals secret motives and psychology of bear traders as well as bulls. Increasing volume verifies trends while decreasing volume questions the longevity of the current trend.

As a stock sells off and falls, keep an eye on the volume. If the volume picks up into the downward move it means that fear has firmly gripped the crowd of traders trading your particular stock. Now notice the upticks and shallow buy orders every now and then. These are the rookie stock traders buying a downward move in hopes that the trend reverses and heads back up. We like these rookie traders. Why? In order for our sell order to execute, there has to be a buyer somewhere. But you need to know that buying into a downward trend is most often a bad idea. It is called trying to catch a falling knife. Never think you are smarter than the crowd by betting against them. The crowd always wins. Let some other rookie trader play that game. When all the sellers get out of a stock, the volume on the downside will fall off as the downward move runs out of steam.

In an uptrend, rising volume shows that greed is setting in as people dog pile into the stock. It also shows sellers dumping their position betting that the market is going to turn around. Remember, in order for a buy order to execute, there has to be a seller somewhere. Selling into an uptrend makes sense only if your original profit thesis (target) has been met. When all the buyers are done chasing the stock higher, the volume on the upside falls as the uptrend runs out of steam.

Volume gives you useful clues in addition to telling you the conviction of a given trend.

A one-day splash of uncommonly high volume often marks the beginning of a trend when it accompanies a breakout from a trading range. A similar splash tends to mark the end of a trend if it occurs during a well established move. Exceedingly high volume, three or more times above average, identifies market hysteria. That is when nervous bulls finally decide that the uptrend is for real and rush in to buy or nervous bears become convinced that the decline has no bottom and jump in to sell short.

A divergence between volume and price usually means that a stock is at a turning point.

When volume falls as prices rise, it means that the uptrend is attracting less interest. When volume falls while prices fall to a new low, it means that lower prices are attracting little interest and an upside reversal could happen at any time. Price is slightly more important than volume but millionaire traders analyze volume to figure out the psychology of the crowd before committing to a decision. - 23212

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