Significance of volume: How heavy trade spreads an ‘open sesame’ moment

The protagonist in “Ali Baba and the Forty Thieves” enriched it after uttering the magic word “open sesame” to enter the cave filled with hidden treasures.




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But volume, not a phrase, was the key to naming stock Alibaba (BABA) is building its own resources from a strong breakout in early 2020. Since passing a buy point in July, the stock has risen more than 30%. The characteristic of buying by institutional investors is the high volume up day, its price was the main reason for the progress.

The relationship between volume and price is one of the main considerations that an investor should keep in mind when deciding to buy a stock. Buying stocks in the true sense of the word is essential for price rise, as it is an important indicator of institutional buying. This is a key consideration for Can Slim investors.

Volume is an important indicator when a stock price is falling. If the drop comes in large amounts, it could mean that your stock pick is at risk of sinking as companies throw their shares overboard. Holding a stock can be more comfortable if its price falls on a lighter volume.

IBD founder William J. O’Neill says developing the ability to analyze volume is an essential element for a successful investment in his classic Tom, “How to make money in stock.”

“Once you acquire this skill you don’t have to rely on the personal opinions of analysts and supposed experts,” he wrote. “Large volumes are essential at some key points.”

Distribution volume washes away weakly

Referred to by many as the “Amazon of China”, e-commerce stock Alibaba is the market leader of late. After creating a cup with a handle base from the end of January to the beginning of July 2020, investors were given the opportunity to look forward to the Magic Carpet Ride. (1).

Distribution, or reduction in high volume, was a key feature of the base-building process. The base cup part of the base has averaged sales on both the start and tail-end sides. It was the bleaching of weak investors. The process peaked on May 22 (2), When it was sold in volume which was 166% higher than normal in the company’s earnings report. It seemed like a good jolt as the stock started recovering from there.

From June 24 there was still time to make a handle on the stock. A key feature here was selling below average (3)Which suggests that unconfirmed holders have already been flushed.

Volume sees Alibaba stock gain overflow

When Alibaba’s stock rose above its 231.13 buy point on July 6, it was a high-confidence move. The volume came in 70% higher than normal on a weekly basis and on average 48% higher (4). The rally came amid optimistic economic data from China. The next day a negative session came in at 17% less volume than usual, suggesting that the bears were ready to give up the fight.

Proved to be in this case. The next two sessions have seen further progress in prices, and its breakout amounts to more than a day. Volume increased 97% in session with most purchases.

The stock will consolidate and move further before making a new flat base entry. But with handle breakouts alone the cup has gained 16% of investors. Towards the end of October 2020, the stock rose about 33% for those who bought the entry on July 6th.

This article was originally published October 23, 2020 and has been revised

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