How to Invest Safely For Stress-Free Profits (Part 7)

No matter where you get the information, stock analysis looks at several factors (called its “trend”). These factors are volume and volatility.

Volume, you will recall, is the amount of shares that are being moved for a particular stock. Volume is described in the financial journals as either “thin” or “heavy”. In hard copy journals, volume might be noted in special type if there has been a change (either positive or negative) of more than a set percentage.

Online reporting of a stock’s volume will be updated frequently, in many cases as often as every half an hour or less. Regardless, you must understand that volume is only one factor to consider when analyzing a stock and its potential performance in hopes of adding it to your portfolio.

Volatility is referring to the market itself rather than to individual stocks. It is the movement, up or down, or in some cases the lack of movement that will indicate either heavy, light or no trading is going on.

Again, as with volume, this is only one factor to look at, and for a real analysis, more information will be needed. You must look at all of the key factors before making any decisions, regardless of how safe and risk free you think that they are. Do not go off thinking that you can just make a trade and sit back and rake in the dough, it just does not happen that way, at least not in real life.

Analysts look at each factor individually, and then as a whole. You must be able to understand how each piece of the puzzle fits together and what they can mean to your financial outlook and the potential movement of your stocks and other financial products.

Volume is rarely used by the short-term trader because one day’s information on volume does not yield any usable information, however volume usually does tell how well a stock is moving, but not always why it is moving so much.

If a stock has been fairly stagnant for a week or more, and then suddenly spikes up or down, there might be an issue in the air, and should bear careful watching before making any large moves on your part. Analysts use volume for other information as well and to track possible trends. The five basic rules that are used by technical analysts that deal with volume are:

1. If prices are up, or going up and volume is increasing, then prices will most likely continue to rise.

2. If prices are up, but the volume is faltering, then those prices will either increase more slowly or they will start to fall back off.

3. If prices are down already, and the volume is up, then prices will go down even lower.

4. When both price and volume are falling, prices will either slow down or they will slowly start to go up.

5. Flat volume has not impact on stock price at all. That which is neither rising nor falling defines flat volume.

Read more…

Stock Trading Do’s And Don’ts: How to Invest Safely For Stress-Free Profits (Part 1)
Stock Trading Do’s And Don’ts: How to Invest Safely For Stress-Free Profits (Part 2)
Stock Trading Do’s And Don’ts: How to Invest Safely For Stress-Free Profits (Part 3)
Stock Trading Do’s And Don’ts: How to Invest Safely For Stress-Free Profits (Part 4)
Stock Trading Do’s And Don’ts: How to Invest Safely For Stress-Free Profits (Part 5)
Stock Trading Do’s And Don’ts: How to Invest Safely For Stress-Free Profits (Part 6)
Stock Trading Do’s And Don’ts: How to Invest Safely For Stress-Free Profits (Part 7)
Stock Trading Do’s And Don’ts: (Part 8-14)

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