Stock Price Charts

How does volume determine the price of a stock?

I'm not going to search for highly scientific and technical terms. I just want to know the following: We have a relatively considerable downtrend stock that is suddenly showing a massively high volume change. Does this mean the stock is being bought by huge institutions (mutual funds)? If yes, this logically consolidates the stock and gives it support to start a significant uptrend move, doesn't it? And is the opposite also true? When we have a stock that has been on the rise for a relatively considerable period and now, suddenly, after a lot of action spotted in its volume, the stock begins its downtrend, does this mean the same institutional owners and other traders are losing confidence in the stock? Is the price of a stock pushed upward or downward in relation to the number of people or institutions that own it? Does the volume of a stock only show sheer speculation about that stock? Also, why should I care, in a stock chart, about the P-E ratio? If I know the price of the stock and its EPS, what use can the P-E ratio be? Or is it only there so that you may compare it with the company's previous P-E ratio, kind of like the EPS? Is the overbuying of a stock a good sign?

Public Comments

1. For trends be it trending up or down, it boils down to a question of demand and supply. When volume increases, it indicates either many people chasing after the stocks resulting in higher prices or dumping stocks that results in depressing the price. The trend can be tied to a lot of factors, good news or bad news for the company, shape of the economy and things such as government actions or policies that affect the company. PE ratios, EPS all relates to the fundamentals of the company. For traders, usually these are not taken into consideration as the motive is to trade these types of stocks in a short period of time. For long term investors these are some criteria for them to look at. It all depends on the approach and strategy used, either fundamental or technical.
2. increase in volume is alwase good if increase in volume.if stock is going down then also . as per the law the share should go down with less volume.pe ratio should should be clouse to sector pe ratio.if pe ratio is too high means spculator are there in the share and it may come down
3. >>Does this mean the stock is being bought by huge institutions (mutual funds)? Yes in most cases. >>this logically consolidates the stock and gives it support to start a significant uptrend move, doesn't it? It depends. It might be one-off. It might be just buy back of short position. You need followers to make trend and nobody can tell if followers will show up. If you can tell start of trend by volume change, anybody can make money easily. Things are not that simple. P/E is just to compare with previous P/E or other companys' and judge whether stocks are overbought or undervalued.