| Re: Volume
Many times one can hear the pundits on CNBC talking about the market (any) making new highs on heavy volume. They take out their pom-poms as the market goes up 159 points on heavy volume. How little they know.
VSA Axiom:The market does not like wide spread up days on heavy volume. Why? The truth is that strength means weakness and weakness means strength. In this case, the wide spread heavy volume may in fact mean the professionals (strong hands) are selling to the retail traders (weak hands). There is a possible transfer of ownership in place. The question to ask is, on a wide spread up day with heavy volume who was doing the selling? It is clear that the herd is most likely doing the buying. But from whom are they buying? The pros (strong hands). Why? Well, one doesn't really know, but it is clear that the pros are not willing to support higher prices. Markets rise only when they are supported by professional demand.
Without any understanding of volume a trader is trading blind. He can be sucked into the good news and euphoria of the day, which is what the professionals want. They want the retail trader to get long as the market is about to fall. Once the retail trader reaches his pain threshold and liquidates, he will only add fuel to the down move (which of course only hurts the retail trader that much more).  |