Price Reverse on Volume Spike

13 九月, 2009 於 23:55 | 張貼於技術分析 | 發表留言

VOLUME SPIKES
Madness is the exception in individuals but the rule in groups
—Nietzsche*
A volume spike is just what you would expect, a single day on which the volume
was much higher than the previous day—at least twice as high, perhaps
3 or 4 times as high.
A volume spike means that everyone has jumped into the boat at the
same time. Experienced traders will tell you that when the public jumps in,
it’s time to get out.
You can see volume spikes on the three charts that we’ve already studied.
Let’s look again at the last one, AOL. We see the highest volume days in April,
August, and September 1999, and in January 2000. What is common about

these spikes? They occur at the bottom of a price move. After a spike, prices
reverse. In Figure 13.2 spikes occur at both tops and bottoms.
A spike doesn’t tell you how long or how severe the following reversal
will be. It just tells you that the current move is exhausted. It may turn out to
be a major top or bottom, or simply a local turning point.
Volume spikes are a good example of extremes. It is easier to identify and
trade an extreme. If you start to spend a lot of time trying to decide if volume
is confirming or rejecting a price move, then it’s not clear enough to trade.
Put it aside and try to find another stock or another way to make the trade.
The theory of a spike is that when everyone has entered the market, there
is no one left to buy (or sell) and prices must reverse. The crowd is always
wrong—at least their timing is always wrong.