Beginners watch only prices. It's easy to become hypnotized by stocks moving up and down.
Experienced analysts gain a much deeper understanding of the markets by including volume in their analysis. In addition, price changes need to be linked to the length of time it took for them to occur. All trading decisions have to be made by analyzing more than one timeframe.
This chapter also reviews open interest, a measure relevant only for the derivatives markets, such as futures or options. If you don't trade derivatives and don't wish to study open interest, skip questions 5–7, 5–8, and 5–9 and add three points to your score.
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Volume reflects all of the following except:
- How market participants will react to future price changes
- How many winners and losers are active in the market
- Whether masses of losers are staying put or running
- The degree of emotional involvement among traders
The market has been rising for several months in an orderly pattern of rallies and shallow declines; a new rally is in progress. Match the following pairs of statements concerning this rally's volume:
- Volume is slightly higher than during the previous rally.
- Volume is double what it ...