Evaluating Supply and Demand

The best way to measure a stock's supply and demand is by watching its daily trading volume. When a stock pulls back in price, you want to see volume dry up indicating no significant selling pressure. When it rallies up in price, you want to see volume rise, which usually represents institutional buying. When a stock breaks out of a price consolidation area, trading volume should be at least 50% above average volume of the stock. Higher volume indicates solid buying of the stock and possibility for further increase in the price. Using daily and weekly charts helps you analyze and interpret a stock's price and volume action.

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