"Trends in the stock market get strength from the volume." Comment on the statement highlighting relation between trends and volume in a stock market.

CS Executive · Capital Markets & Securities Laws · PYQS · December 2016
"Trends in the stock market get strength from the volume." Comment on the statement highlighting relation between trends and volume in a stock market.

Answer & Explanation:

Trend represents price movement of a specific security in a stock market and it may be upward or downward trend. And, it is true that volume provides strength to trend. In fact, volume makes an attempt to confirm the strength of price trends. There is positive relation between trend and volume- with an upward trend, volume increases and with a download trend, volume in the stock market falls. Higher volume represents higher demand and it acts like a fuel in the market - with increasing volumes, prices go up and the market has an upward trend while with decreasing volumes, price go down. But, in an upward market, if the volume starts declining or in a download market, if the volume starts increasing, then it means that there is a trend reversal and hence, the investor should take a trading position in such a case- either sell or buy shares.

Topics: Stock Market Analysis

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