Technical Analysis

[jovial66]

Hello All,
I am new to stocks and just beginning to learn about TA. Here are some questions.

1) When people say higher lows, does it compare the closing prices at the troughs of an uptrend or the absolute low of the candlesticks including the shadows? Similarly for higher high, is it the closing prices or the absolute high of the candles?

2) When a minor resistance is immediately broken and with high volume above 50dayAvgVol, is this considered an uptrend or should one wait for a retracement + rebound at the resistance turn support level?

3) What is the rationale behind getting in the market( placing buy/sell orders) when there is a 30% volume increase and above the 50dayAvgVol?
Does it mean it is riskier to trade when the volume is low (lower than 50dayAvgVol)?

Thanks.

[jsssm]

1. Generally you want to see both: higher close, higher intraday high. You want to see a healthy uptrend which includes pullback that do not violate previous lows.
2. If it breaks some resistance and makes a higher high, then it is in an uptrend (how strong of an uptrend is a case by case evaluation). You should be able to buy the breakout as well as the test of the old resistance/new support. But honestly in this market you should not really be buying ANY breakouts. If you time these entry intraday and get good prices, then stops are much easier to set.
3. I wouldn't focus too much on volume. High volume days CAN signify turning points and it is best to see increase in volume in the primary trend and decreasing volume on pullbacks. But remember, ff a stock moves up 10% on low volume or high volume, it has still moved 10%! Here is an article on volume SFO Magazine Official Journal for Personal Investing in Stocks, Futures and Options

[thewild1]

Here is an interesting theory in relation to volume, at least how I see it.

Lets compare volume to customers, a store's merchandise to each share of stock, and a returned item as selling off shares. It is also key to remember that buying causes price to go up and selling causes prices to go down.

On average Store A sells 50 items of merchandise. We can relate this to a stocks average volume.

Now lets say Store A sold 30 items one day.

Now one month later Store A sells 100 items of merchandise. That obviously correlates to a much higher volume than average (50).

No matter how many things a company sells, there will always be people who want to return (or sell their stocks). Obviously returns will hurt more when only 30 items were sold compared to 100 items.

Hopefully, this somewhat makes sense. If more people are willing to hold a stock at a higher price than before, then there is a better chance of the stock staying the new price.