How to Analyze the Momentum, Volume and Price Action in Stock Trading

How to Analyze the Momentum, Volume and Price Action in Stock Trading

How to Analyze the Momentum, Volume and Price Action in Stock Trading

Trading is basically buying and selling. Stock trading involves exchange of foreign currencies on a market. There are millions of stocks on the financial market that interchange based on economic and environmental conditions in different parts of the world. Various factors affect financial markets and the change in the foreign currencies, which creates the trading aspect.

Stock trading is about analyzing these factors that influence change in currencies and making buying and selling decisions based on these projections. There are multiple techniques that stock traders use to make their trading decisions that lead to either profit or loss.

Financial markets entail billions of stocks that cannot be analyzed manually hence the need for technological techniques and software for easy and fast results. Even though software uses technical analogies to filter the stocks, there are elements that lay a basis of arriving at profitable stocks for your investment. Momentum, volume, and price action are the basics in stock trading analysis.

Price action

This trading strategy focuses on technical tools and ignores fundamental analysis. Price action describes the characteristics of securities price movements. It is a commonly used technique by stock traders that intend to generate profit over a short period.  Analyzing price changes and trends on price graph is the main basis of making a stock investment. Stock traders make subjective decisions based on history of the type of stocks and how they responded to elements in the market.

Tools used

The basis of investing decisions brings in all technical tools that can help analyze and compare data from recent past and trends in the market. Price bands, trend lines, charts, graphs, and technical consolidation levels are used according to a trader’s preference and goal. The tools can further to complex calculations like using channels and vitality.

Stock traders also base on psychological and behavioral interpretations to make investment decisions. On the price graphs, there is a line, which is considered as a psychological mark, usually at level 600. If a stock crosses this line upward, some traders interpret it as an indication of a long term upward trend. To some stock traders, when a stock crosses this line and keep on moving upward, it is time to back out of the stock because it indicates a significant drop in the near future.

There are a variety of rules and speculations when using the price action. In fact, stock traders always differ in their interpretations. After using these tools and getting similar results, the difference in traders who make profits and losses come in interpretation of the graphs and trend lines.


Probably, this is the easiest oscillator used by stock traders. It is all about establishing price differences at fixed intervals. Momentum is the measure of velocity and speed of price changes. It is as simple as finding closing stock prices at the start and the end of a given period, say 10 days. Subtracting the closing price from the last 10 days from the recent closing price; the result can be either negative or positive depending on the nature of change. To find a momentum, the result is plotted around a zero line.

How it works

The difference of prices at the start and end of a period gives a clear view on rising and falling stocks during the stated period. It is considered the most effective and efficient method when determining the strength and weakness of a stock. While it is used universally, it is most preferred when markets are rising than when markets are falling. This is because financial markets tend to rise more often than they fall.

Momentum establishes trend lines based on differences in prices, which indicate falling and rising stock prices. After plotting the price difference results against the zero mark, stock traders watch the plot lines. If the plot line shoots upward above the zero line, it indicates the price is increasing. If the trend line remains on a level for an extended period it means the stock has maintained its previous value hence losing value, which is ultimately low price.


Volume analysis is a common stock trading technique that involves evaluating the number of share or securities sold and bought over a given period of time. The number of investors trading in a particular stock is an indication or high value and rising trend in price of the stock. Also, high number of investors can indicate flooding of the stock; this is a red light of investment considering it is going low with no further warning because of the accumulation of traders. It is possible that there are many sellers on a stock but no buyers. Interpretation of stock and share volume is dependent on individual intended period of trade.

A significant increase in volume and price indicate a bullish trading trend. The vice versa indicates a bearish trade environment. Basically, volume analysis is a basis of establishing other stock trader decisions and nature of the trading environment.

Positive volume indexes (PVI) and negative volume index (NVI) are the two primary indicators that help investors when analyzing stocks using this method. When volume increases, the PVI is adjusted; when volume decrease on previous day’s stock, NVI is adjusted. Changes in the indexes indicate that volume is significantly influencing price hence a suitable method or making an investment move depending on index variations on the different stocks.