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• •
CO L UMN • •
Graph 1: Strength of Trend
SOURCE: COMPILED BY AUTHOR
Graph 2: Price turn-around SOURCE: COMPILED BY AUTHOR
Graph 3: Breaking through significant price levels SOURCE: COMPILED BY AUTHOR
volume will increase when a new
trend is formed after the reversal.
This interaction is demonstrated
graphically in Graph 2.
iii) Price level breakout
One of the biggest fears of market
participants is the possibility of a
false breakout. This happens when
prices break through significant
support or resistance levels, but
return to initial levels. This risk
can be mitigated by using volume
as an additional aid. The norm is
that a drastic increase in volume
can be seen when prices break
through a significant price level.
The increased volumes represent
larger market participation, which
serves as confirmation of the
breakout. Graph 3 is a graphic
illustration of prices breaking
through a significant resistance
level, where larger volumes can be
seen along with the breakout.
CONCLUSION
By merely having a reasonable
understanding of the above infor-
mation, you will be a step ahead
of the rest. However, it will be
most beneficial to combine tech-
nical analysis with fundamental
analysis in order to make the best
possible decision. When the lon-
ger term support or resistance line
is broken, it can usually be linked
to fundamentally changing supply
and demand factors.
Technical price graphs offer
analysts the opportunity of visual-
ly representing the ratio between
supply and demand and possible
changes in the ratio can be indi-
cated by various price indicators.
With volume as basis, the next
few articles will focus on the utili-
sation of open interest as technical
instrument as well as the interpre-
tation of the interaction between
price, volume and open interest as
a combination.
For more information or to
obtain competitive option prices
on a large variety of commodities,
please contact Susari Geldenhuys
at 018 464 7430 or 072 116
9999 or e-mail her at Susari.
[email protected].
SENWES Scenario • AUG/SEP 2017
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