I hope the previous page gave you an insight into how the stock markets really work, which I urge you to test in your stock trading simulator. Now as we continue to learn stock trading techniques, let me give you some examples of volume spread analysis which I hope will help to provide you with a deeper insight into this simple yet powerful trading technique which will give you reliable trading signals and profitable trades whether virtual trading or online stock trading in the cash markets. So let’s take some simple examples which I hope will help you to learn stock trading.

Practice stock trading

virtual stock trading chart Bellway

The above chart is from Bellway, a UK share, and shows the daily price candles for the last few months, with the associated trading volume shown below. The area of the chart I would like to concentrate on is that towards the end of April, where we see the share price rising but suddenly see a high volume bar appear, touching 1000k, and an associated narrow spread up candle. This is an early warning signal that the market makers are struggling to move the stock higher and therefore suggests that this is a potential turning point. After all, it takes effort ( volume ) to move the market higher or lower, and the price action should therefore reflect the associated volume. In this case the increase in volume is not being matched with an increase in price, which suggests that the market makers are selling into the market in preparation for a move lower in due course, with the stock failing to move higher due to a lack of buyers. After all if the market was bullish rather then potentially bearish, this strong volume would be reflected in a wide spread up candle, not a narrow spread bar, which clearly signals a market that is struggling to move higher, with the market makers selling as a result. Having seen an early sign of weakness in the stock, we wait for a confirmation signal which duly arrives three days later in the form of a shooting star candle, a strong signal indicating a  potential top and turning point for the stock. In addition, the volume of the last few days has been falling and low, confirming that the move is indeed running out of steam. As a result we wait, and as expected the market begins to fall, and as soon as it breaks below one of our technical indicators, we trade short, knowing that the market makers are also trading the short side of the market. We continue to trade short until we see them re-enter the market with high volume on a narrow spread down candle which will signal a possible reversal once again, which we wait to be confirmed.

virtual stock trading chart

Now we have another stock trading example again, and just as in the previous example, here we have a stock which is rising but about to reverse. In this case the stock traded higher throughout March, but suddenly towards the end of the month we see excessive volume on the daily chart, which is accompanied by a narrow spread up candle. Clearly the market is becoming weak, and the market makers have seen it as well, selling heavily into a rising market, as the stock struggles to continue higher. This sudden increase in volume with no associated and equivalent rise in price, immediately signals that there is a possible turning point developing, and therefore a trading signal for us as stock traders. The market continues to struggle higher on narrow spreads and finally turns lower as expected, and once again we follow it down once the price action has broken below a key indicator, such as a moving average or a support and resistance area.

I hope the two simple examples above have convinced you of the power of volume spread analysis. Learn how to use this technique in your virtual trading system, and you will begin to read the market as it flows along each day, providing you with a unique view of the the future price action for your stocks. If you practice nothing else in your virtual stock market trading account, this is the one technique I would urge you to practice, although you must remember that volume spread analysis is more of an art than a science,  and in order to be successful you will need to study and hone your chart reading skills so that spotting these turning points become second nature. There is of course much more to the technique, but I hope the above simple examples will get you started in your search to learn stock trading.

Now let me give you my top stock trading tips to help you get started with your stock trading software programme.