Why Is Trading Volume So Important?
Trading volume reflects overall market activity, indicating the sheer amount of buying and selling of securities. Here's why it's important.
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To understand market timing indicators, it’s important to understand what market timing is. The very short definition is that market timing is an investing strategy where you attempt to predict how the market will move in the coming days and buy or sell based on that.
Even though market timing is big for short-term traders, there can be some advantages to the strategy for long-term investors, as well. Market timing indicators can give you some advanced warning of market volatility or the most important thing to investors—is there any way to see a downturn coming and to avoid the pain?
The answer is yes, and the method for avoiding devastating declines isn’t as complicated as the media makes it out to be. The biggest problem is that there are a lot of market timing indicators out there. Some of them work better than others.
There are three market timing indicators we rely on most here at Cabot.
The Cabot Trend Lines are our unique way of determining the long-term trend of the stock market. As long as both the S&P 500 Index and the Nasdaq Composite fluctuate above their respective trend lines, we consider the market to be bullish. If both indexes are below their trend lines, we are in a bear market.
With Cabot Tides, we use five different market indexes to help us determine the overall intermediate-term direction of the stock market.
And our Two-Second Indicator’s specialty is detecting market tops.
The key here is that these indicators are trend following measures, not trend predictors. In geological terms, you can think of them as the instruments we use to predict volcanic eruptions. They measure what is happening around the volcano so you aren’t caught off guard when it erupts.
To learn more, download our FREE report, Technical Analysis of Stocks: How Relative Performance Works, Why Trading Volume is Important, and Other Chart-Reading Lessons.
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