Volume in selloff events

Discussion in 'Trading' started by dmacdonal9, Feb 27, 2002.

  1. So someone mentioned they'd rather enter a price decline on high volume. That's what I seem to hear most often, but others will use high volume as a sign of conviction behind the move.

    Say 2 stocks go down 20% in one day. One did so on low or average volume and the other does so on very heavy volume.

    I interpret the first to mean that it simply had to go a long way down to find a few buyers for a few sellers who wanted out, indicating that the stock was overvalued to begin with, and a bounce is less likely.

    I interpret the second to mean that there was a fight between a huge number of buyers and sellers all the way, but the sellers won in the short term. That seems to me to favor the chances for a bounce the next day.

    Is this how it happens? I ask here because I'm thinking the daytraders and tape readers are more likely to understand the role of volume in these extreme price movements.
     
    #11     Feb 28, 2002