Volume Interpretation with Stock Charts

I am closing out the volume section of the investors education on this blog this week, and I am pretty excited!!! I first introduced volume in March with Volume and its Meaning, then moved onto explain Accumulation and Distribution days, and now you will show you how to interpret volume on a stock chart with some simple technical analysis. What is left after this? A quiz, and you know it will be a good one!

To make this lesson/article/education experience worthwhile for you, I would first re-read the articles I listed above related to volume. If you are not used to looking at stock charts, review my post on stock charts, understanding the basics.

I will summarize the main points regarding volume that will be used to interpret the chart below:

1. Volume is the number of shares exchanged throughout a given day
2. Each bar on a stock chart represents a day, week, or month so make sure to check and see which it is before doing any analysis.
3. A Accumulation day is any day that a stock closes up on higher volume than the day before.
4. A Distribution day is any day that a stock closes down on higher volume than the day before.
5. "Heavy" accumulation and distribution days have volume that exceeds the current multi month averages overall.

With these pointers listed, let's take out first look at a chart and do some interpretation. The first chart is daily view taken of Google (GOOG), and there are three points on the chart boxed in green (last one black) which I will discuss.

Stock Chart Apple

1. There are three days in the green box here. Take a quick look and see what type of volume days they are considered before reading on. The first day which looks to be about March 20th is simply an accumulation day. Why? The day was up overall and volume was higher than the day before. The second day is considered heavy accumulation because volume exceeded the 60 day average (that red line going through the volume bars). Any guess on the third day? It is actually is NOT accumulation, and it isn't distribution either. Even though the day ended up, the volume was lower than the previous day, as a result the day is considered simply an up day.

2. Now we are looking at the second block of three days which looks to be around April 25th, 26th, and 27th. The first day is heavy accumulation as the stock moved up on higher than average volume. The second is also heavy accumulation as the stock gapped up and traded over 60 million shares! Lastly, the third day here is neither again as volume was lower than the day prior. What you want to take note of with these three days is how powerful two heavy accumulation days in a row can be. See how much the stock moved those two days?

3. The third block is two days which looks to be May 7th and 8th contains another example good of heavy accumulation. That first day is considered heavy accumulation as the day ended up, and volume exceeded the average alongside the day priors volume. Now second day, can you guess it? It is not considered heavy accumulation as volume was not higher than the day before.

Closing Notes

The whole purpose for this post is to give you an example and help you physically see and view accumulation or distribution days. Granted, with the chart above of Apple there were not too many distribution days to be found, but you get the idea!

If you want to see a heavy distribution day look at the 2nd day shown on the chart which was in mid February, you can see a big sell off of over 75 million shares as the stock tumbled from above $95 to around $90.

Comments

  1. Posted by Wolf Stone on May 10, 2007 at 12:58 pm

    If anyone wants to learn more about volume and how to use volume to predict the direction of a stock they should read a couple of articles by Tim Ord.

Trackbacks

  1. [...] Volume Interpretation with Stock Charts [...]

  2. [...] Volume is the actual number of shares traded by a stock (Find out how to read volume on stock charts). [...]

  3. [...] Volume interpretation with stock charts which breaks down distinguishing a accumulation day versus a distribution day on a stock chart. [...]

  4. [...] us when FSLR stock finally made the push out of the descending channel and closed on higher than average volume. This sparked a run of 100 points or 50% as the stock ran from $200 a share to $300 a share in less [...]