Buy Side Institutions Influence on Stock Price & Volume

Review the Importance of Volume Patterns

Volume provides easy to read information regarding the liquidity for a stock at a particular time. Falling volume often precedes the slip-slide action when price falls not due to profit taking or selling short, but simply because there are insufficient buyers at the time to sustain price.
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With the advent of the new Securities and Exchange Commission SEC pilot program designed to test wider spreads on thousands of stocks to see if the wider spread will provide more liquidity, watching volume has become even more important than ever before.The test pilot program has been under way and mostly small cap stocks are benefiting from the wider spread testing.
Big blue chip stocks can suffer also from very low liquidity at times, which can create anomalies and alter short-term runs often surprising the Retail Trader who is expecting a run to continue moving upward.
Buy Side Institutions influence on price and volume is due to their accumulation over time and their bulk of volume activity. However when there is uncertainty, these giant funds will cease their buying and wait. They can be patient for extended periods of time, sitting on the sidelines waiting to see how the other professional Market Participant Groups, the smaller funds, and the retail crowd behave.
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Buy Side Institutions use custom routing with Alternative Trading System venues creating Dark Pools. This keeps their activity hidden to lessen the risk of moving a stock price due to their liquidity draws, which can be significant. However the retail crowd tends to move price with higher volatile price action. See the chart example below.
chart example for caterpillar, inc - technitrader

The slip-slide action on the is indicative of a lack of Dark Pool Buy Side Institutions interest in this stock at this time. If this persists the risk of a High Frequency Trader trigger to the downside is likely to increase.

Summary
Stocks require rising volume to sustain runs, but stocks can fall easily on a lack of volume. This is one reason why volume indicators are important to incorporate into your analysis, as well as your favorite price and time indicators.

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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com


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