what does it mean when you see a large volume (over 150% of average volume for a certain period) traded on a stock but the stock is not going anywhere. is this hesitation? consolidation? embrace for a big move?
It's a sign of absorbtion. The buyers/sellers that are agressively entering the market (the large volume prints that you're asking about) are being absorbed by the excess supply/demand that exists at that level. If the absorbtion level holds, this is typically a good point for entry. This is also referred to as churning.
Before you attempt to beat the odds, make sure you can survive the odds beating you.
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so if that level where big volume takes place holds, we expect a move up.. means more buyers are still there than the supply.. but if didn't hold, a move down starts.. cause we ran out of buyers while there's still supply..
in both cases, big volume with no significant price change = big move ahead.. in some direction..
did i get this right?
thx, RedK
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I primarily trade CL so I'll use that as an example...
Heavy buying volume prints around 96.30, but price stays unchanged or ticks lower. If price continues to hold around this level then you could typically expect a move in the other direction (short). How big a move depends on other factors.
Before you attempt to beat the odds, make sure you can survive the odds beating you.
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for the easy reference of those who search this thread later...
Definition of 'Churning'
1. An unethical practice employed by some brokers to increase their commissions by excessively trading in a client's account. This practice violates the NASD Fair Practice Rules. It is also referred to as "churn and burn", "twisting" and "overtrading".
2. A period of heavy trading with few sustained price trends and little movement in stock market indexes.
The ability of a security to absorb buy and sell orders without the stock price dramatically moving in either direction. Depth is closely related to the liquidity of the market. A deep market can be expected to absorb larger buy and sell orders before an order moves the prices. Generally, deep markets will have smaller bid-ask spreads because of the increased competition among market makers for order flow.
