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Wednesday, May 23, 2012

Interpreting Volume

I am the first to admit that gauging volume is not my forte and I normally use other indicators derived from volume that are easier to understand.  For for some traders, particularly TraderFlorida, volume is key.

Let's take a look at the ORCL daily. See the 3 attempts of trying to break out of the horizontal resistance as circled below.  Look at the corresponding volume -- low!  No volume to support the break out and the resulting outcome of the failed attempt is devastating.   But this is the easy one.  It's too obvious.

Let's look at the AAPL daily.  I forgot to draw circles but you can see excluding the partial candle (2 hours into trade today), it has had 3 days of rally.  Also look at the corresponding volume for the 3 days.  They are about on par with the 30 day average of 23 million shares.   However, TraderFlorida (who's been the authority on AAPL trades BTW) maintains that the bounce has no volume, or has no volume to support it and therefore he is short.  I simply don't get that argument.  The volume is certainly much larger than (just about) every single day of down trend in the last 2 weeks!

Is the volume "light" relative to the down volume back in April?  Is the volume "light" because it did not dwarf the 30 day volume average?  Or is the volume "light" because a counter-trend move demands much bigger volume for validation?  I am going to read that William O'Neil book over again.  I am just not getting it.   BTW, I am short the market and a bit of AAPL.  It's just that I didn't short because of the volume.

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