Recently, I've been asked about this topic quite frequently, so let's have a brief discussion on the relationship between volume and price.

The discussion won't be too lengthy, as I don't want to make it overly complicated.

If we were to truly analyze the relationship between volume and price, the theory could span tens of thousands of words, and practical technical analysis could produce hundreds or even thousands of variations.

I firmly believe in two points: first, simplicity is the ultimate sophistication; second, the market is the best teacher.

Therefore, instead of explaining a bunch of theoretical knowledge that everyone finds hard to understand,

it's better to practice and engage in real combat, allowing the market to tell us what the relationship between volume and price is really about.

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Without further ado, let's dive right into the discussion on volume and price.

1. What is the essence of volume and price?

In two words, it can be explained as "game play," and in four words, it can be described as "chip relationship."The concept of game theory is quite easy to understand; it's the contest between capital and chips at a certain price point.

For example, if the stock price is at 10 yuan and the trading volume is 1 billion yuan, this 1 billion yuan is in a game, trying to determine whether this stock is really worth 10 yuan.

The larger the trading volume, the greater the divergence of opinion.

The market is always in a cyclical process of convergence, divergence, re-convergence, and re-divergence.

That is, at a certain price point, the game between buyers and sellers will eventually come to an end.

If the buyers' strength is greater, the price will rise after they buy; if the sellers' strength is greater, they will drive the price down if they can't sell all their chips.

The essence of the relationship between volume and price is a relationship of chips.

2. What is the mantra for volume and price?

There is actually a very simple mantra for volume and price.

Just remember four sentences.1) Upward movement requires volume, and the multiple of volume determines the height.

The rise of a stock requires an increase in trading volume because volume is the manifestation of capital entering the market. The more capital there is, and with a relatively fixed number of shares, the higher the potential for the stock to rise. Without sufficient capital and without adequate turnover of shares, unless there is absolute control by the market manipulators, there is no driving force for the stock to rise. If everyone is just watching the show, who will carry the sedan chair?

In the context of volume, there is a concept called "multiple volume." This refers to how many times the current trading volume has increased compared to the previous volume. Why does the multiple of volume determine the height? It is because the multiple volume represents divergence and convergence. In simple terms, at a certain point in time, there is a huge divergence, resulting in a large trading volume. If the stock price can continue to rise after the multiple volume occurs, it means that at this stock price point, capital has completed divergence and convergence.Once a price is recognized, the stock price opens up further room for appreciation, as the capital that entered at this price needs to make a profit.

2) Downward movement should be accompanied by a reduction in volume, with the bottom volume determining the low point.

The essence of a decline is that there are too many shares and too little cash, in short, a lack of followers.

At this time, as the main force capital, it is highly likely that it will sell out.

In the early stages of selling, the market is still in a game, so the trading volume will not contract significantly, but it will at least decrease.

The mentality of buying the rise and not the fall determines that the decline must be accompanied by a reduction in volume.

The more the stock price falls, the fewer people will buy, and correspondingly, the fewer people will want to sell, because they have given up.

There is a saying, "the lowest volume sees the lowest price."

This saying, applied to the current market, may not be entirely accurate, but it is not far off.

When the market has a weak balance and the funds for selling are particularly few, it is difficult for the stock price to have further room for decline.Because everyone is unwilling to sell off their holdings, the number of shares available decreases.

Even if capital does not recognize the current price and is unwilling to buy stocks, the stock price will not plummet significantly again.

Most likely, it will become a state of going with the flow until the next time it is noticed by capital.

When trading volume is reduced to the extreme, it becomes an opportunity for a change in the market trend. The most feared thing during a decline is low trading volume, but not a shrinking downtrend.

3) Look at the trading volume in a volatile market, and there are many moderate opportunities.

In addition to rising and falling, there is another situation in the market and individual stocks, called range fluctuation.

How to judge the range fluctuation market through the relationship between volume and price?

In fact, this is also very simple.

High turnover with increased volume, exit; low turnover with reduced volume, enter.

There is a type of stock that has been fluctuating in a range for a long time.Capital at the bottom will stealthily enter, absorbing chips.

Their way of exiting is by accelerating the rise, attracting market attention, increasing volume to attract funds to follow, and then exiting.

All those inclined to a volatile market, the relationship between volume and price is to increase volume to escape, and reduce volume to enter.

The reason for this form is that capital does not want retail investors to see its intentions, so it chose to deceive the heavens and the earth.

When the volume is moderate, there are the most opportunities.

At the bottom, retail investors cannot determine whether there is capital entering, and at the top, they cannot confirm whether the capital is leaving, but in the middle, when the volume increases, it is likely a prelude to the capital starting to accelerate.

Therefore, during the adjustment period, a moderate increase in volume is a good entry signal.

4) Trend depends on turnover, moderate can hold.

If the market has a trend, such as a big bull or a big bear.

At this time, attention should be paid to the turnover rate, how much there is.The turnover rate and trading volume still have some differences, especially after the stock price rises, the amount of transactions will increase sharply, but the turnover rate will still go down.

The turnover rate determines the divergence.

The divergence in the trend market is a signal for a change in the market.

It is also the so-called divergence of volume and price. Once it appears, it means that the trend may change.

For example, when the volume is increased at the waist, whether it is rising or falling, it is basically a signal to escape.

Because the position of the waist, theoretically, there will be no huge divergence, it can only be the fund deliberately increasing the volume, triggering the escape sign.

So, some trend stocks can be held for a long time when the volume is moderate.

Whenever there is a large turnover, we must be particularly cautious, there must be a major divergence.

But for the trend of falling stocks, only one suggestion is given, that is, try not to participate, do not care about the relationship between volume and price.

On the way down in a trend, even if there is a signal of increasing volume to build a bottom, it may also be a false signal.If the volume at the bottom is moderate, it is a signal of bottoming out; if it is abnormally amplified, it still indicates divergence. This represents that the process of decline has not yet come to an end.

In addition to these standard volume-price relationship mantras, there is a core to the volume-price relationship, which is the divergence of volume and price. What we usually see as bottom divergence and top divergence is actually the divergence of the volume-price relationship, which is then displayed on certain technical indicators. Volume is released when it should not be, and there is no volume when it should be, both of which are prone to problems. For example, volume contraction at high levels is a very strange situation, because as the stock price rises, divergence will eventually come. Of course, the lock-up of some long-term funds nowadays is an important reason that leads to some minor changes in the volume-price itself.

When judging the volume-price relationship, in addition to the volume and price, it is also necessary to pay attention to the logic. Many times, changes in logic will lead to the lock-up and liquidation of funds, and will also bring changes to the volume-price relationship.In summary, the relationship between volume and price is not particularly complex in itself.

However, more often than not, it is necessary to analyze market changes comprehensively based on actual situations, and then one can predict the intentions of capital.