Making a Million Using Stocks and Shares ISAs - Part 10 of 26
By Stephen Sutherland, author of Liquid Millionaire.Posted in the Category of ISAS, Investing, Stock Market, Investment Fund on 27th February, 2010.
Tags: investment fund, isa, isa trend investing, liquid millionaire, price, stock market, volume.
Over the last few months, I’ve been writing an ISA Trend Investing Guide that shows you how you could make a million using ISAs.
Over the next few weeks/months, I’ll be giving you an exclusive sneak preview before the main newspapers get their hands on it because I suspect that some time in the future, you’ll be seeing a copy inside your favourite weekend broadsheet.
In my previous blog I continued to share with you the 7 lessons about how the stock market works and covered Lesson 5: 75% of the market’s movement comes from institutional investors.
Today, I’m going to be explaining Lesson 6: Watch the price and volume action.
Lesson 6: Watch the price and volume action
One of the best ways of reading the market is to look at charts. A stock chart is a graph that displays the price and volume history of a given security or index over a period of days, months or even years.
Price and volume charts help you to see what the professionals are doing so that you can follow in their footsteps. Whether they are buying or selling, through a chart you can see what they are doing by simply looking at the price and volume action. Price action is how a stock or index changes in price. Volume action tells you the number of shares that have been traded.
For example, if volume is far above its average and the price action is up, the professionals are buying. On the other hand, if the volume is far above average and the price action is down, it means that the professionals are selling. Lack of volume combined with prices moving up indicates little demand from the professionals. This is viewed as unhealthy action.
Lack of volume combined with prices moving down means that the professionals are reluctant to sell. This type of action is viewed as healthy action. By watching the market every day, and keeping a close eye on price and volume action, you can determine exactly what the professionals are doing with their money so that you can do the same.
Below are four images. They show the difference between healthy price and volume action and unhealthy price and volume action.
Healthy Price and Volume Action
Unhealthy Price and Volume Action
It is also important for you to understand that it takes a lot of buying or selling to confirm that the trend of the market has changed.
For example, if the trend of the stock market is up, it takes a lot of selling to change the trend from up to down. By measuring how much selling is going on over certain time periods, you can determine when the trend is about to change or has changed and you can then act accordingly ie; switching some or all of your holding into a cash based fund such as the Fidelity ISA Cash Park.
Reading the market’s health gives you inside knowledge of future market direction and if the market’s health has become sickly, it tells you that if you stay invested, your investments have a high probability of dropping in value.
It is helpful to be aware that it’s impossible to time getting out at the very top of the market or getting in right at the very bottom.
Next week I’m going to close off the seven lessons and then move onto some more juicy stuff about ISAs.
Until next time my friend.
Find Out More
If you would like to find out more about how you can make a million pounds through using an ISA and help make you a liquid millionaire then please contact a member of my team for a chat. You have my word there will be no sales, no jargon, just the facts.
Your friend,
Stephen Sutherland
The UK’s Leading Authority in ISA Trend Investing and Author of Liquid Millionaire
Please Note: As always, let me remind you that I am not a financial adviser and therefore not authorised to give advice on what investments to buy or sell.
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