Evaluating Support and also Resistance With Price by Volume
In this post, we discuss what PBV graphes are and also explore strategies that you can make use of to make reliable professions utilizing these charts.
Trendlines, graph patterns, pivot factors, Fibonacci lines and Gann lines are amongst the most preferred approaches used to identify locations of assistance and resistance. PBV graphes can be produced in several various charting applications, as well as by using complimentary online charting solutions from web sites like BigCharts.com as well as StockCharts.com.
Many state that charting is absolutely nothing even more than forecasting the instructions of a rate in between significant assistance and also resistance degrees.
In this short article, we explain what PBV charts are as well as explore techniques that you can utilize to make effective trades using these charts.
What Are PBV Charts?
Trendlines, chart patterns, pivot factors, Fibonacci lines and Gann lines are among the most popular methods used to identify areas of support as well as resistance. The less frequently utilized PBV charts, which illustrate volume utilizing an upright volume pie chart, can be indispensable when establishing not only the place of crucial support as well as resistance levels, but likewise the toughness of these levels. PBV graphes can be produced in numerous different charting applications, as well as by making use of complimentary online charting services from web sites like BigCharts.com and StockCharts.com.
Using PBV Charts
PBV charts are relatively easy to use and understand. There are three major elements involved:
- Volume strength indicates the amount of shares that traded at the given price level. This is indicated by the horizontal length of the PBV histogram.
- Volume type refers to the number of shares sold compared to the number of shares bought. This is indicated by the two different colors seen on each bar.
- Successful reactions or tests means the number of times a stock successfully tests and "bounces off" a given level.
Together, these three factors will allow you to determine the strength of a particular price level. Once you have a good idea of price strength, you can combine this information with trendlines and other studies to determine support and resistance levels, find support bases and even play gaps.
Finding Support Bases
Support bases are simply instances in which a stock ranges before continuing a trend or reversing. To determine when a stock is basing, simply follow these steps:
- Draw two parallel, horizontal lines that connect parallel highs and lows in a trading range after a trending move.
- Then, use the PBV histogram to see if these parallel lines are located near key price levels.
- Finally, note the buying or selling pressure (colors) as well as the total volume to determine in which direction a breakout is likely to occur.
Figure 1 shows the now-absorbed Hudson City Bancorp along with the PBV histogram. Looking at this chart, we can see that the longer blue bars indicate buying pressure or support, while a longer red bar indicates selling pressure or resistance. Meanwhile, the larger overall bar indicates that that particular price level is of interest to traders. In this case, we note that $12.50 appears to be a level at which we can watch for a breakout to the upside.