Volume Analysis & Market Breadth Flashcards

In technical analysis, what does 'volume precedes price' mean?

Answer: Changes in volume patterns often signal upcoming price direction shifts

Volume is considered a leading indicator because shifts in buying or selling pressure (visible through volume) often occur before they are fully reflected in price movements.

On-Balance Volume (OBV) is calculated by:

Answer: Adding volume on up days and subtracting volume on down days cumulatively

OBV is a cumulative volume indicator developed by Joe Granville that adds the day's volume when price closes up and subtracts it when price closes down, tracking money flow.

What does 'negative volume divergence' signal when price reaches new highs?

Answer: Weakening buying pressure, suggesting the uptrend may be losing momentum

When price makes new highs but volume fails to confirm (declining on rallies), it indicates waning conviction behind the move, often preceding a reversal or consolidation.

The Advance-Decline Line (A/D Line) measures:

Answer: The cumulative difference between advancing and declining issues over time

The A/D Line is a breadth indicator calculated by cumulatively adding the daily difference between advancing and declining stocks, reflecting broad market participation.

What is the significance of 'volume climax' or 'selling climax'?

Answer: Extremely high volume on a sharp decline that may signal exhaustion of sellers and a potential bottom

A selling climax features panic-level volume on a steep price decline, representing exhaustion of selling pressure and often marking a significant low or trend reversal point.

Which breadth indicator measures the percentage of stocks trading above their 200-day moving average?

Answer: The percentage of stocks above MA200

The percentage of stocks above their 200-day moving average is a breadth indicator that gauges the overall health of a market by showing how many stocks are in long-term uptrends.