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I recently had an old 401k error that resulted me getting an additional about 1k. Instead of rolling it into my main retirement accounts, I decided I would use it to start investing with a self directed account.

One observation that I've seen from the basic charts Merrill Edge provides is that volume of trading is closely correlated with the first derivative (rate of change) of the stock price.

Logically it makes sense that when a price is dropping (or going to drop) people want to sell, and vice versa. In what situations would this to not be true? What kind of information, or variables, should I be looking for to determine when this wouldn't happen?

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  • Hi, I'm sorry about the rough question. What about it deserves a -1?
    – Carlos Bribiescas
    Commented Nov 9, 2015 at 0:35
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    When price is dropping, some folks will see that as a buying opportunity, so the relationship you propose just ain't that simple.
    – keshlam
    Commented Nov 9, 2015 at 4:29

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When stocks have a change in price it is because of a TRADE. To have a trade you have to have both a buyer and a seller.

When the price of a security is going up there are an equal amount of shares being sold as being bought. When the price of a security is going down there are an equal amount of shares being bought as being sold.

There almost always is an unequal amount of shares waiting to be sold compared to the amount waiting to be bought. But waiting shares do not move the price, only when the purchase price and the sale price agree, and a trade occurs, does the price move.

So the price does not go down because more shares are being sold. Neither does the price go up because more shares are being bought.

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