What is bullish and bearish volume?
There are only two basic definitions of bullish and bearish volume:
1. Bullish volume refers to the increase in volume during an uptrend and the decrease in volume during a downtrend.
2. Bearish volume refers to the increase in volume during a decline and the decrease in volume during an increase.
Knowing this is just a start and in many cases, it is not very helpful for trading. You need to know much more than these general observations. You need to look at the spread and the relationship of price action to volume. Most technical analysis tools tend to look at an area of the chart rather than a single trading point. That is, averaging techniques are used to smooth out data that is considered noisy. The net effect of smoothing is to reduce the importance of changes in the data stream and obscure the true relationship between volume and price action, rather than highlighting it!
Using the software, volume activity is automatically calculated and displayed on a separate indicator. Its accuracy leaves you in no doubt that bullish volume is expanding on an up bar and contracting on a down bar.
The market is an ongoing story that unfolds bar by bar. The art of reading the market is to look at the big picture, rather than focusing on a single bar. For example, once a market has completed its distribution, the "smart money" will try to trick you into thinking the market is going up. Therefore, you may see an upsurge or a low volume up bar near the end of the distribution phase. Both of these phenomena mean little on their own. However, because the background is weak, these signs now become very important signs of weakness and a great place to go short.
No action taking place in the present can change the strength or weakness that is lurking in the background. It is important to remember that recent background signs are just as important as recent signs.
As an example, you do the same thing in your life. You make daily decisions based on your background information, and only partly based on what happened today. If you won the lottery last week, yes, you might buy a yacht today, but your decision to buy a yacht today will be based on your recent background history, i.e. the financial strength that showed up in your life last week. The same is true with the stock market. Today's moves are largely influenced by recent background strength, not by what actually happened today (which is why "news" don't have long-term effects). If the market is artificially high, it will be due to a weak background. If prices are artificially low, it will be due to a strong background.
Accumulation and distribution
Syndicate traders are very good at deciding which listed stocks are worth buying and which are better not to buy. If they decide to buy a stock, they don't act rashly or half-heartedly. They first make a plan and then launch a coordinated stock acquisition campaign with military precision, which is called "stacking." Similarly, the coordinated method of selling stocks is called distribution.
accumulation
Stacking is buying as many shares as possible without raising your purchase price significantly, until there are few or no more shares available at your purchase price. This type of buying usually occurs after a bear market trend.
For syndicate traders, lower prices now look attractive. Not all shares issued can be accumulated directly, as most are tied up in a pile. For example, banks retain shares to pay off loans, and directors retain shares to maintain control of the company. What syndicate traders are after is floating supply.
Once the majority of the stock is off the hands of other traders (ordinary private individuals), there are little or no shares left to sell at markups (which usually results in a price decline). At this "critical mass" point, resistance to higher prices has been removed from the market. If many other professionals have accumulated in many other stocks at similar times (because market conditions are right), then we have the makings of a bull market. Once a bull market begins, it continues without resistance because the supply that was on the market has now been removed.
Distribution
At a potential top in a bull market, many professional traders will seek to sell stocks that they bought at lower levels in order to capture a profit. Most of these traders will place large orders to sell, but instead of selling at the current price, they will sell within a specified price range. Any sell orders must be absorbed by the market makers, who must create a "market". Some sell orders are filled immediately, while others are "booked". The market makers, in turn, must resell, which must be done without affecting their own sales or those of other traders. This process is called distribution and usually takes a while to complete.
In the early stages of a distribution, if there is too much selling and the price is forced down, the selling stops and the price is supported, which gives market makers and other traders the opportunity to sell more shares in the next wave up. Once professionals sell most of their holdings, the bear market begins because without the support of professionals, the market tends to fall.
Strong and weak holders
The stock market revolves around simple principles of accumulation and distribution, and these processes are not well known to most traders.
Perhaps you now understand the unique position of market makers, syndicate traders and other professional traders - they can see both sides of the market at the same time, which is a great advantage over ordinary traders.
Now is the time to round out your understanding of the stock market by introducing the concept of "strong and weak holders."
Strong holders
Strong holders are typically traders who do not allow themselves to get into bad trading situations. They are comfortable with their positions and are not shaken out on sudden declines nor are they sucked in at or near market tops. Strong holders are strong because they trade on the right side of the market. They usually have a strong capital base and are generally good at reading the market. Despite their savvy, strong holders will often suffer losses, but they will be small because they have learned to close losing trades quickly. Consecutive small losses are viewed the same way as business expenses. A strong holder may even have more losing trades than winning trades, but overall the profitability of the winning trades will far outweigh the combined impact of the losing trades.
Weak holders
Most traders who are new to the market can easily become weak holders. These people are usually underfunded and cannot easily handle losses, especially when most of their capital is disappearing quickly, which will undoubtedly lead them to make emotional decisions. Weak holders are in the learning stage and tend to trade on "instinct". Weak holders are traders who "lock themselves in" when the market moves against them, hoping and praying that the market will soon return to their price levels. These traders can easily be "shaken out" on any sudden movement or bad news. Generally speaking, weak holders find themselves trading on the wrong side of the market and therefore get immediately pressured once the price moves against them.
If we combine the concepts of strong holders accumulating shares from weak holders before a bull market, and distributing shares to potential weak holders before a bear market, then in this case, a bull market occurs:
A bull market occurs when stocks are transferred in large quantities from weak holders to strong holders, and generally speaking, weak holders will suffer losses.
A bear market occurs when strong holders transfer stocks to weak holders in large quantities, and generally the strong holders will make a profit.
When the market turns from one major trending state to another, the following events always occur:
Buying climax
Brief definition: An imbalance between supply and demand causes a bull market to turn into a bear market.
Explanation: If the volume is exceptionally high and the spread is narrowing, reaching new highs, then it can be confirmed that this is a "buying climax".
It is called a "buying climax" because for this phenomenon to occur, there must be a huge buying demand from the public, fund managers, banks, etc. In this buying frenzy, group traders and market makers will sell off their holdings to the point where no higher price is now possible. At the end of the buying climax, the market will close at the middle or high price.
Selling climax
Brief definition: An imbalance between supply and demand causes a bear market to turn into a bull market.
Explanation: A selling climax is the opposite of a buying climax. In a down move, the volume will be very high, and the spread will narrow as prices make new lows. The only difference is that before the market starts to turn around the previous low, the price will close in the middle or low of the bar chart.
For this phenomenon to occur, a massive sell-off is required, such as the sell-off that occurred after the tragic events of September 11, 2001, the terrorist attacks on the World Trade Center in New York.
