FINDING BOTTOMS IS EASIER THAN DETECTING TOPS

Large funds are much more cautious when they sell than when they buy. When a large fund buys a considerable amount of shares, this influences the demand/supply, which could eventually push the price up. If the price moves up before the fund has finished accumulating, the result is that the fund will turn a paper profit on its previously acquired shares. No fund manager will be blamed for making a profit. However, if the fund manager sell those shares too quickly, the demand/supply equilibrium could change so much as to push the price down. The fund manager will then start to incur a loss on the leftover holding position. For this reason, selling usually takes place during a longer period of time than buying. Moreover,the fund manager could be tempted to place shares at the ask/offer price, in order not to pressure the price down by taking off the bid. This passive strategy is MORE DIFFICULT TO DETECT THROUGH VOLUME ANALYSIS. Therefore, using the total Effective Volume to evaluate selling signals will more often give better results than just taking the standard volume analysis.

Second, shareholders usually sell to take profits. This means that some start selling at a 10% profit, others at 20% profit. When you analyze the selling pattern,it is true that selling could start even when the price is still increasing, because shareholders do not always wait for tops before selling; they will start to sell their profit target has been reached. However,in the case of buying, the great majority buy when they detect that the stock is a good value play. THIS IS WHY FINDING BOTTOMS IS EASIER THAN DETECTING TOPS.