A few weeks ago, we talked about some of the major trading styles…
And what distinguishes a trading style from a trading strategy.
If you missed that one, what you really need to know is that a style typically determines how often you’ll trade…
While your strategy dictates when you’ll choose to enter and exit those trades.
In other words, your trading strategy is the specific rules and methodology you base your trades on.
Now when it comes to strategy, some of the most popular include trend trading…
Range trading…
Breakout trading…
And reversal trading.
These strategies all focus on different aspects of the market and use various tools and formulas to try and indicate which way a given price is going.
But all the strategies I mentioned above share one important thing in common…
They utilize what we call lagging indicators.
I’m talking about things like moving averages, MACD, stochastics, Bollinger bands…
The list goes on and on.
But here’s the thing…
We call them lagging indicators because they can only tell you what the market has done…
That is, where it’s been in the past.
But the reality is that historic data alone simply cannot tell you where the market is going.
Only volume can.
See, volume can be interpreted in three main ways…
As selling pressure…
Buying pressure…
Or neutral volume, which means no pressure in either direction.
Of course, basic economics tells us that when buyers start entering a market in large numbers, it drives the price up…
And likewise, when there are more sellers in the market, prices will fall.
Now, when volume starts building up on a live exchange floor, it’s obvious.
If you’ve ever visited the NY Stock Exchange and seen the pit traders in action, you know what I’m talking about…
But if you haven’t had that chance, then be sure to check out our next issue, where I’ll tell you about one trader’s trip to the London Stock Exchange…
And how he discovered that volume is actually the fuel that drives price.