Volume Analysis & Market Breadth Flashcards
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Read the first 6 Volume Analysis & Market Breadth flashcards as text
What is 'distribution' in the context of volume and market structure?
Answer: Heavy volume on declining days suggesting institutional selling into rallies
Distribution occurs when institutions sell large holdings into market strength, typically showing up as high volume on declining days and low volume on advancing days.
Chaikin Money Flow (CMF) primarily measures:
Answer: The volume-weighted average of buying and selling pressure over a set period
CMF uses the close location value multiplied by volume to create a volume-weighted measure of buying versus selling pressure over a specified lookback period.
What does a 'volume dry-up' near a support level suggest?
Answer: Sellers are becoming exhausted and a bounce or consolidation may follow
When volume dries up as price tests support, it indicates that selling pressure is diminishing, which can be a constructive sign that support may hold and a reversal could develop.
In market breadth analysis, what does a 'bearish breadth divergence' mean?
Answer: The market index achieves new highs while the A/D Line fails to confirm by making lower highs
Bearish breadth divergence is a warning signal where fewer and fewer stocks participate in an index's new highs, suggesting the rally is narrowing and vulnerable to reversal.
The 'volume-price trend (VPT)' indicator differs from OBV in that it:
Answer: Multiplies the percentage price change by volume rather than using the full day's volume
VPT weights volume by the percentage price change rather than adding the full volume amount as OBV does, making it more sensitive to the magnitude of price moves.
In technical analysis, what is meant by 'confirming volume'?
Answer: Volume that supports and validates a price breakout or trend by being above average in the direction of the move
Confirming volume means that volume expands significantly in the direction of a price move (high volume on breakouts/rallies, low volume on pullbacks), adding credibility to the price signal.