Syndicate
Bar Charts and Contracting Volumes
Bar Charts: The charts of bars are done for each security you want to analyze. It is done having I account the three more significant prices during a determined period (session, week, month or year): the highest quotation, the lowest and the closing price of the period. You might also want to consider the opening quotation for the period.
Characteristics of these types of charts:
They are used as a complement to lineal or dotted charts.
They can predict changing tendencies when after a long risk or fall a session with much negotiation is produced and with a high closing price, after a falling phase, or low, after a rising phase.
In this type of sessions the bars formed by the highest and lowest price of longer than that of the former session (more difference between both prices) and the closing price is above or below from the bars of the day before.
Contracting Volumes: These kind of charts are structured with two axis. In the vertical axis the contracting volumes of a security are situated, or of a group of securities, in the horizontal the time is presented in day, weeks, months or years.
The volume of contracting is defined as the number of shares traded on a session.
This type of chart is studied together with the lineal or BAR charts.
For the interpretation of the contracting volumes you have to have in mind the following characteristics:
You have to expect that an increasing on the quotation of a security that is followed by an increasing of the volume will mean that the rising tendency will continue. The volume gives us important information about the fortitude or weakness of the predominant tendency. For example, a low tendency has much fortitude if it is accompany by an increase of the volume.
The contrary would be, if a scarce number follows the movements in the market, this would mean that besides being movements of a small magnitude, it will also have a short duration.
When the volume is scarce and the price touches the support level, it’s a sign that the selling operations are diminishing and that a rising tendency is beginning.
To this situation, in which the volume goes with the tendency, they call it concordant volume.
If there is an scarce volume and the prices is reaching the resistance level, it means that there re few investors that are willing to buy, in consequence, a low tendency is begun.
Under all of these suppositions, the most used way to operate is know as price-volume system: you have to buy those securities which quotations have registered a rise with large contracting volumes and not to sell them when a low tendency with scarce contracting volumes happens. On the contrary, you have to sell those securities whose quotations fall with large contracting volumes and not to buy them when the rising of quotations is followed by weak contracting volumes.