Page 1179 - How to Make Money in Stocks Trilogy

162 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

Chart-Reading 101:
Always Check Price and Volume

Some people write off charts as too complicated—or as some type of mod-
ern day fortune-telling tea leaf. But the fact is, charts are nothing more than
a visual representation of price and volume action.
And the picture a chart paints is very revealing: That combination of price
and volume clearly shows you what big investors are up to.
Here’s how it works . . .
Institutional investors are like the proverbial elephant in the bathtub—
they can’t hide. When they jump in or get out, you can’t miss it if you use
charts.
That’s because a stock chart will clearly show any significant spike (or
drop) in volume as the share price changes. That change in volume tells you
how serious the buying or selling by institutional investors actually is.
The scenarios in the following charts give you a basic look at how price
and volume work together. Other factors may come into play, but for now
these outline the key concepts to keep in mind.

Now That’s Unusual!
As you go through these scenarios, understand that you’re looking for
unusual volume—either unusually heavy or unusually light.
For example, if a stock that normally trades 1 million shares a day sud-
denly trades 2 million, you need to pay attention. That’s not your Uncle
Fred buying or selling 100 shares. That’s institutional trading—and you
have to find out what “story” it’s telling.
Take a few minutes to carefully review the notes inside the following
charts. Pay special attention to the spikes in volume that are highlighted and
the “story” they reveal about what fund managers and other big investors
are up to. Knowing how to spot unusual volume—and understanding what
it means—will be key to your investing success.