Changes in trend are often associated with sudden increases in trading volume and it is therefore well worth monitoring volume, particularly when a stock experiences a key day reversal.
|Let’s take a look at Capita, the UK services stock. Since 2000, it had been in a steep downtrend falling from 600p to just 1/3 of this value at 200p.
In hindsight, we know that the first few months of 2003 provided a great buying opportunity for most stocks, but could analysis of the volume have helped us back then ?
We have already discussed the concept of key reversals. The chart below shows the two day reversal back in January 2004 – this signal was confirmed by the large increase in trading volume at that time. Note the volume histogram has a moving average line to isolate days of above average volume.