Trading Volume Spikes and Market Movements

Did you know?A 2017 JPMorgan study noted that passive investors like ETFs and quantitative accounts contribute significantly to modern trading volumes, accounting for roughly 60% of trading volumes at the time. (Source)

In today’s financial spectacle world, everyone is willing to achieve their corporate and business freedom through the means of their sustainable investments and profit generation from the stock market. 

As an internet analyst, I’ve realized that so many Gen Zs and Millennials are trading their money on expert platforms like the trade 350 app to achieve their dreams. While some earn a lot, a major people struggle to make a penny, or they find it hard to recover their investment.

That’s why in this blog post, I’m going to cover some of the most crucial insights about the trading volume spikes and constant market movements to provide valuable information to the readers.

Let’s begin!

Key Takeaways 

• Understanding what trading volume is Decoding its volume spikes 
• Exploring how these spikes create price fluctuation 
• Uncovering some interesting case studies 
• Looking at some major pros and cons of the volume spikes 

What Is Trading Volume?

Now, let’s start things off by understanding the basic demography of trading volume in the stock market, which has also become a hot topic for this industry. Many experts have a different take on this concept, but in the next few segments, I’m going to explain it in the simplest way possible.

Definition and Basic Concept

So basically, a trading volume is a set of trades that are being active throughout a specific time period, for instance, a trading day. The thing is, it is a key indicator for market analytics and asset forecasting in the trading ecosystem, making it crucial in every segment.

Why Volume Matters

Well, as far as I’ve seen, it is important for so many trading steps and helps both beginners and experts in their entire profit generation journey. It is primarily crucial for indicating liquidity in the assets, allowing for confirmation of price trends and notifying potential breakouts. 

Interesting Facts
A crucial technical analysis concept is volume-price divergence. If a stock’s price keeps rising but the trading volume is declining, it suggests a weakening of the underlying buying pressure and a potential change in trend.

What Are Volume Spikes?

Next up, let’s take a look at the most important part of this article, which is none other than Volume spikes. They are the sharp and crisp rise graphs in the stock markets that happen because of any political or financial events.

Characteristics of Volume Spikes

Now every Volume Spike has a similar type of influence and includes characteristics like: 

• Sudden surge and low supply
• High signs of interest
• Followed by a crucial event 
• Has a great visual representation 

How Volume Spikes Influence Price Action

I’m now going to cover a very interesting take on volume spike, which happens once in a while but becomes revolutionary. Let’s take a closer look: 

Price Breakouts and Volume Confirmation

Price breakout and volume confirmation often make the value of the resistance stock very low and simultaneously increase its surge due to its hype and availability in he market.

Fakeouts and Low-Volume Moves

Sometimes all these spikes are a publicity stunt driven by billionaires or financial leaders, and the actual value of the stock falls after he hype disappears, resulting in trading losses for many people.

Case Studies

In this phase, I’m going to explore some real-life case studies so that you can relate to this concept more easily.

Case Study 1: Bitcoin in March 2020

The Bitcoin Pitfall
The WHO made its announcement on March 11th, 2020, which lead to Bitcoin’s price decreasing over 40 % between March 6th and March 13th (from $8,900 to $5,165), at its lowest price in a year.

Case Study 2: Tesla (TSLA) in 2021

The Sudden Rise Of Tesla 
In 2021, Tesla achieved success because of its strong brand, technical innovation, and efficient production, but it also faced the competition of established automakers speeding up their own electric vehicle plans. Tesla accomplished several significant milestones, such as joining the S&P 500 and reaching an instantaneous market cap of over $1 trillion.

Trading Strategies Using Volume Spikes

According to me, using volume spikes for your trading strategies can be a breathtaking move for your investment journey, as you can earn substantial money with just analytical predictions. 

Today, three types of roadmaps are mostly followed, and we are going to explore them one by one: 

• Breakout confirmation: It validates the strength of stock signals 
• Trend Reversals: It captures prolonged volume momentum 
• Continuation Pullbacks: This identifies low-risk entry points for traders 

Pros and Cons of Using Volume Spikes in Trading

Coming to the nearest end of the road, I want to tell you guys about some pros and cons of the volume spikes, and to simplify things,

 I’m giving a brief chart below that everyone must read.

Advantages	Disadvantages
It can confirm early breakouts  Spikes has the potency of identifying reversals  They can also indicate strong momentum for the active traders	Sometimes it can generate false signals and action calls It requires rapid decision-making, which makes it almost an anti-beginner thing  Spikes are heavily dependent on contexts

Tools and Indicators for Volume Analysis

Last but not least, I want to talk about the common tools and indicators that are available on credible trading sites like the trade 350 app, to assist investors in crucial steps. Mostly, there are four types of indicators, which are: 

• On Balance Volume- This measures the in and out flow of the security domain
• Money Flow Index– It is responsible for calculating the combined momentum of price and volume
• Volume price trend– VPI significantly assesses the relationship between price and volume changes to gauge buying or selling pressure.
• Relative Volume Index- Lastly, this factor calculates the historical data with the current ones 

Conclusion

To sum up this entire segment, I just want to say that the trading atmosphere is becoming competitive day by day, and to survive in this situation, you need to proactively analyze the volume spikes and curate strategies around them.

Always make sure to conduct audits around your roadmaps before investing any money, and go through this blog post again if you have some doubts left.

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