Written by A.J. Brown

Big Volume Is Like a Left Hook

Boxing Gloves

After writing yesterday’s blog post, I was still thinking about volume and how to explain it using a different analogy. Boxing came to mind.

Another way to view volume is through the lens of effectiveness. If the price flutters up and down without any volume behind it, then it is ineffective price movement. There is no force behind it. But if the price moves solidly with many traders pushing the price up or down, then the price movement is effective.

For instance, if a boxer delivers a bunch of right jabs to his opponent, it might look as if he’s getting somewhere… when all he might be doing is wearing himself out. That’s because a jab has little force behind it.

It is not until the boxer sinks a left hook deep into his opponent’s face that his punching becomes effective. That’s because there’s a locomotive behind that left hook. The force is almost unstoppable.

It is the same in the markets. Price movement without volume is like a bunch of weak jabs; but price movement with volume is like a powerful left hook. Keep that in mind when you are analyzing the underlying stock behind an option contract you would like to trade.

Best Regards Always,

A.J. Brown

Categories: Education / Options

5 Responses to “Big Volume Is Like a Left Hook”

  1. Asian Markets Tumble @ 2:13 pm (Pingback)

    [...] This is not meaningless price movement. There is plenty of volume behind these [...]

    • 
  2. ALMA TRENT @ 6:25 pm:

    Using “boxing” to explain BIG VOLUME is the perfect analogy.
    THANKS

    • 
  3. Eugene Tetzlaff @ 10:45 am:

    Nice piece on Volume A.J. I am by nature a pattern hunter and one thing I have learned with price patterns there is also a volume pattern to match. If the volume pattern doesn’t match I move on to the next chart.

    • 
  4. 1Macho.duck @ 12:41 pm:

    As Usual AJ “Nailed IT!”
    nuff said

    • 
  5. Timothy "Timorous" McCready @ 6:25 am:

    Nice analogy! The challenge for the technical trader is this: what to do when there is an apparent price action trend WITHOUT significant volume commitment? Perhaps using a sizing model that take market volume into account? (Meaning that a trend signal which lights up without volume confirmation could be taken, but with smaller sizing than normal)

    As always, good post. Thanks!

    Timorous

    • 

Leave a Reply




Video: Covered Call Writing  

Learn How to Write Covered Calls

In this series of 6 videos, I show you how to execute my covered call writing strategy from start to finish. Watch the first video instantly when you click for more information. Click for more »