Positive correlation between price development and volume development is a sign of strength. It shows high buy interest near tops in the price chart, and low sell interest near price bottoms. This indicates that investors who already own the stock and those who consider buying both believe that the price will rise.
Correlation between price and volume development is considered an important indicator. It is often used alongside trend analysis and other indicators based on the stock price.
The chart shows positive correlation between price development and volume development when the stock is in a rising trend. This volume development confirms the positive mood among investors and indicates that the rising trend will continue.
There can also be positive correlation when a stock is in a falling trend. It then signals that the strength of the falling trend is waning and a reversal may happen in the near future.
The following applies to positive correlation between price and volume development:
Thus we want to see a positive correlation between price and volume development for stocks we own or will buy. Positive correlation indicates a healthy stock with a positive development of the investors’ view of the stock. Such a stock is indicated to continue rising.
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Investtech guarantees neither the entirety nor accuracy of the analyses. Any consequent exposure related to the advice / signals which emerge in the analyses is completely and entirely at the investors own expense and risk. Investtech is not responsible for any loss, either directly or indirectly, which arises as a result of the use of Investtechs analyses. Details of any arising conflicts of interest will always appear in the investment recommendations. Further information about Investtechs analyses can be found here disclaimer.
The content provided by Investtech.com is NOT SEC or FSA regulated and is therefore not intended for US or UK consumers.