TechniTrader® B101 Weekly Stock Review 082914

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Why Price is No Longer the Most Important Indicator By Martha Stokes, CMT

Stock Chart Analysis Should Not Be Limited To Just Price

New investors and traders tend to go to the Internet to find information about stock trading.

Often, they read many articles that were written decades ago or that use outdated theories and

strategies. The information on the Internet is made up of mostly very old styles of investing and

trading. Many new investors and traders believe that because a theory or concept has been

around a long time, it has to be a good one. Unfortunately, the opposite is true. The market

structure has changed dramatically since 2008, and every professional has been changing how

they invest and trade as well. New investors and traders need a reliable place to receive current

information that is relevant to our modern electronic marketplace, with the new regulations,

etc., which will affect investments and trading short-term for monthly income.

Older articles claim that price is the only part of the stock chart necessary to study. This is due

to the fact that the original stock charts did not include volume, as it was not available to

include this in the handwritten or manually-drawn stock charts. Only with the new charting

software, which can include all 3 pieces of data, has volume become the standard all

professionals use alongside price, even if they day-trade.

One of the most important new facts that new investors and traders must face is that price is

no longer the most important aspect of a stock chart. There are 3 pieces of data that come from

the market for each stock transaction: Price, Time, and Quantity. In order to be consistently

successful in the market, you need to learn how to use all 3 pieces of data in your stock-chart

analysis.

Quantity is defined in 2 ways:

1. The volume for that period of time, such as the volume for one day or one week for the

stock.

2. The share-lot sizes traded for that period of time, aka one day, one week, and so on.

Price reflects how much the stock moved up or down in relation to prior periods. The period

setting on the example chart below is one day, which is the time for this data. This means you

have price and time, but you do not yet have quantity.

TechniTrader® B101 Weekly Stock Review 082914

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Volume is a Stock Indicator that shows the volume, aka number of shares traded, each day or

other time setting, such as each minute. It is the easiest of all the indicators to learn, and the

MOST IMPORTANT indicator to learn, as it must be used in conjunction with price analysis.

As a beginner, you should look at the current price activity of the day and the volume bars in a

stock chart. Volume bars are the graphical representation of the total number of shares traded

each day. There is always a buyer and a seller for each transaction; however, volume is the total

number of shares that trade hands, so the buyer-seller interaction occurs in one share-lot

transaction.

As an example, if a buyer wants to buy 100 shares and a seller wants to sell 100 shares, the

seller’s account has 100 shares removed, and the money is deposited into their broker account.

This occurs when the order is executed and the buyer takes possession of the stock, paying for

it via their online broker account. The volume for this transaction is 100 shares, which is the size

of the lot for the transaction.

On the Chart above, first there are the candlesticks, which represent the price movement for

each day. Each candle contains all of the price action for that day.

TechniTrader® B101 Weekly Stock Review 082914

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The red and green bars directly below the candlestick chart are the volume bars. Each volume

bar represents one day of volume for that stock. The Volume bars are colored in order to assist

in faster analysis. Down days color the volume bars red where the price of the stock moved

down in relation to the prior day’s closing price. When price moves higher than the prior day’s

close, then the color of the volume bar turns green.

This chart shows a huge volume spike, which is a High Frequency Trading volume pattern, and

the stock price “gapped” up at the market open due to the very high order volumes of the HFT.

The last day on the chart to the right shows how the volume dropped as price moved up. This is

because smaller-lot investors and smaller fund managers bought into the stock very late, after

the HFTs forced the price up with high volume.

A better entry would have been before the stock moved up on the green arrow day. The stock

moved up out of a consolidation (narrow sideways price action) and had good volume, but not

extreme spiking volume. This allowed traders to buy into the stock as it began moving up, but

well ahead of the HFTs trying to front-run smaller traders.

This is the kind of pattern traders who take TechniTrader Courses learn to recognize and enter.

In order to be successful in today’s stock market, traders and investors must learn to analyze all

3 pieces of data in modern stock charts. Price, Time, and Quantity, all must be used in order to

understand how the stock is likely to move in the near term.

More Free Lessons

TechniTrader® B101 Weekly Stock Review 082914

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Trade Wisely,

Martha Stokes CMT

www.TechniTrader.com

www.MarthaStokes.com

Chartered Market Technician, Member of the MTA Master Rated Technical Analyst: Decisions Unlimited, Inc. Instructor & Developer of TechniTrader Stock Market Courses © 2014 Decisions Unlimited, Inc. DBA TechniTrader®. All rights reserved.

Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.