Mastering Volume-Based Stock Selection Techniques is Better Than Trading for Ten Years
The hardest part of stock trading is stock selection. Therefore, having a robust stock-picking method can greatly reduce losses. Selecting stocks is like choosing a beauty queen—first, she must have a graceful figure and be physically attractive (external beauty), and only then do we consider her temperament, knowledge, and wisdom (inner beauty). Today, I will explain a very practical stock selection method, hoping it will be helpful.
In the relationship of price, volume, time, and space, volume ranks first and requires our utmost attention. Volume and price are inseparable; they must work in tandem. Only by combining K-line analysis with volume analysis can we truly understand the market’s language and grasp the secrets of stock price movements.
Regarding trading volume, I have always regarded it as the "supply and provisions" of the market, while price is the reflection of volume. Price and volume are the fundamentals of technical analysis, and their relationship follows cyclical patterns.
Volume-Based Stock Selection Strategies
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When volume shrinks to an extreme low and then begins to increase steadily, it signals a potential reversal in stock price. The more pronounced the increase in volume, the stronger the subsequent upward momentum.
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Extremely low volume (ground volume) indicates that selling pressure has diminished significantly or that bulls and bears have reached a balance. However, the weak trend remains unchanged. At this stage, a price drop does not require volume confirmation. If the price breaks support, investors who bought in will quickly cut losses.
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The old saying goes, "Ground volume, ground price," but investors should not blindly buy the dip. In a downtrend, extremely low volume may lead to "slow, low-volume declines." Investors should only enter when the stock price starts rising with gradually increasing volume. Although the price may be higher than the bottom, the reversal trend is already confirmed.
Volume analysis can be applied not only to daily charts but also to weekly or hourly charts. The key point is that the conclusions drawn from a particular timeframe’s chart only apply to that corresponding period.
