Listening to the financial news this morning on the radio, and the analysis of the volatility of world stock markets, I was amazed to hear the so called experts actually discussing the associated volume of trades. It seems that at last the market experts are suddenly starting to realise that the only way to forecast future price movements, or to analyse whether a move is true or false, is to look at the voulme!!! I have been using this technique for many years, and it is called volume spread analysis.

Take yesterday’s big fall in London on the FTSE100 – the commentators expressed surprise at such a big fall, and yet only a relatively small volume of trades – what does this tell you – the answer is very simple – this is a false move down by the market makers and professional money. It takes effort to move the markets, both up and down, and clearly the fall in the index of over 100 points does not make sense when viewed against the volume on the day. Clearly something odd is happenning as the market makers are not participating – could it be that they are moving the index down in order to frighten investors into selling – surely not!! OFCOURSE THEY ARE!!!
If you believe the above is just a figment of my imagination, then I suggest you wake up and as they say in America – ‘ start to smell the coffee’ The market makers have been doing this for centuries, and with over three hundred years of experience they are very good at what they do – is called insider trading? – ofcourse not – they are regulated and authorised to make a market – it is simply that that will take advantage of every opportunity, whether it is news, world event or political upheaval, to move the markets in the direction they want, at that particular time. Have a look at my web site where there are two or three pages devoted to using this knowledge to your advantage – after all, if you buy when the market makers are buying, and sell when they well, you will make money – after all, they see both sides of the market – you only see one!! www.making-bread.co.uk

You will see this scanrio played out day in and day out – one of the best times to see it at work is first thing in the morning, as soon as trading has opened. Prices will jump about with no volume, as the market makers test out the reaction to various moves before settling in one direction or another – if you don’t believe me sign up to a decent live data feed, or a good broker like Interactive Brokers, who provide live data as part of their package. Switch to a one minute signal and see what happens – you will be amazed !!

Remember, volume is the only indicator that when associated with the price spread, will give you any clue as to future prices – forget the rest, they are all based on standard deviation to a greater or lesser extent, and as such are lagging indicators – volume is not! Use it with a knowledge of how the market makers work , and when combined with the price action, you have a perfect view of the market!