Professional Wall Street insider asserts under oath: this stock market instrument is NOT outlawed!

Steve Cohen, a master trader, is known to use this indicator for his billion dollar hedge fund company. Cohen’s firm, S.A.C., which derives its name from his initials, is a multi-billion dollar hedge fund company. His incredible stock trading has averaged around 68 percent per year.

He has some 60 traders working for him. He is a master of watching a stock’s volume.

Volume is one of the most overlooked indicators by amateur traders.

Even if you think you understand volume, you owe it to yourself to read this article to make sure you understand how to correctly interpret volume for massive profits.

The meeting of minds between bulls and bears are represented in each measured unit of volume. Shares or contracts that have exchanged hands are measured by volume. Volume is most commonly shown as a histogram bar below the stock price. Volume reveals clues about the psychology of bulls and bears. Increasing volume verifies trends while decreasing volume questions the longevity of the current trend.

In a downtrend, rising volume shows that panic is setting in as people run for the exists. If you look carefully, you’ll also see newbies jumping in as they bet the market is going to reverse. Remember, in order for a sell order to execute, there has to be a buyer somewhere. Buying into a downtrend is also known as trying to catch a falling knife. It is usually a bad idea to bet that the current trend is going to change. Only fools place their bets against the wisdom of the crowd. Allow some other idiot to do that. When all the sellers get out of a stock, the volume on the downside will fall off as the downward move runs out of steam.

In an uptrend, rising volume shows that greed has a firm grip on the people trading it. It too depicts sellers ditching their position calculating that the market is going to reverse. Do not forget that in order for a buy order to get processed, there must be a sell order. Closing your position into an upward move makes sense if your original profit target has been hit. Fear will slowly begin to replace greed as the volume begins to fall off and the uptrend starts to run out of steam.

But volume reveals much more than only the strong belief of the current movement. Volume gives master traders critical clues.

A spike in volume on 1 day often signals the beginning of a new trend when it occurs on a breakout from a trading range. A similar splash tends to mark the end of a trend if it occurs during a well established move. Exceedingly high volume, three or more times above average, identifies market hysteria. This is when fearful bulls finally decide that this uptrend is for real and rush in to buy or it is when fearful bears become convinced that a decline has no bottom and rush in to sell short.

Divergences between volume and price usually take place at psychological turning points.

When prices rise to a new high but volume falls, it shows that the uptrend attracts less interest. If price falls to a new low and volume falls at the same time, it is a signal that the downtrend is not attracting very much interest and an upside reversal is likely. Price is more important than volume, but good traders always analyze volume to gauge the psychology of the crowd.

May this article help you be better trader and pull in a ton of money. For more FREE expert stock trading tips and advice go to stock market and for a the popular lite browser visit free stock analysis