Section 3 - Chapter 5 - Volume , Open Interest & Price

Section 3 - Chapter 5 - Volume , Open Interest & Price - Presented by Rohan Sharma - The CMT Coach - Chartered Market Technician CMT Level 1 Study Material - CMT Level 1 Chapter Wise Short Notes - CMT Level 1 Course Content - CMT Level 1 2025 Exam Syllabus Visit Site : www.learn.ptaindia.com and www.ptaindia.com

1. Chapter 5 – Volume ,Open Interest , Price Section 3 – Trend Analysis Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

2. Agenda State the implications of volume changes for price trends Identify trends in price and volume in a chart Define VWAP Explain how open interest rises and falls State the implications of open interest changes for price trends This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

3. Volume & Price Trends Key Facts About Volume 1. Volume measures trading activity – Higher volume means more interest in the asset. 2. Volume precedes price – Increasing volume can signal upcoming price movement. 3. Trend confirmation – A trend is stronger when accompanied by high volume. 4. Volume spikes signal key events – Earnings reports, news, or breakouts often trigger surges. 5. Low volume = weaker moves – Price movements on low volume are less reliable. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

4. Volume & Price Trends Interpretation of Volume Changes & Price Trends 1. Price Up + High Volume = Bullish Confirmation • Strong buying interest confirms the uptrend. • Institutions and big players are likely involved. 2. Price Up + Low Volume = Weak Rally / Potential Reversal • The rally may lack conviction. • Possible exhaustion or false breakout. 3. Price Down + High Volume = Bearish Confirmation • Strong selling pressure supports a downtrend. • Panic selling or institutional liquidation. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

5. Volume & Price Trends Interpretation of Volume Changes & Price Trends 4. Price Down + Low Volume = Weak Downtrend / Potential Reversal • Lack of selling conviction. • Could indicate a pause before a reversal. 5. Volume Spike + No Significant Price Change = Market Indecision • Could indicate accumulation (before an uptrend) or distribution (before a downtrend). 6. Volume Decreasing in an Existing Trend = Trend Weakening • If in an uptrend, the buyers are losing strength. • If in a downtrend, selling pressure is fading. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

6. Volume & Price Trends Interpretation of Volume Changes & Price Trends 7. Breakouts (Above Resistance) with High Volume = Strong Signal • Confirms breakout reliability. • More likely to continue in the breakout direction. 8. Breakouts (Above Resistance) with Low Volume = Fake out Risk • Could lead to a reversal or consolidation. 9. Breakdown (Below Support) with High Volume = Bearish Breakdown • Confirms strong downside potential. • More likely to continue lower. 10. Breakdown (Below Support) with Low Volume = Fake Breakdown / Bounce Potential • Lack of conviction may lead to a reversal.

7. Volume & Price Trends

8. Futures Markets: Volume & Open Interest Cheat Sheet Key Facts About Volume & Open Interest 1. Volume = Trading Activity o Measures the number of contracts traded in a given period. o High volume indicates strong interest, low volume signals weak participation. 2. Open Interest (OI) = Outstanding Contracts o Represents the total number of open (unsettled) contracts. o Increases when new contracts are created, decreases when positions are closed .

9. Futures Markets: Volume & Open Interest Cheat Sheet Key Facts About Volume & Open Interest 3 . Volume vs. Open Interest o Volume resets daily; open interest is cumulative. o Rising open interest suggests increasing participation, falling OI signals liquidation. 4. Trend Confirmation o Rising OI alongside price trends confirms strength. o Falling OI in a trending market suggests the trend may reverse. 5. Market Sentiment Gauge o High OI with price moves indicates strong conviction. o Low OI means less commitment from traders.

10. Key Signals from Volume & OI Strong Trend Confirmation • Price moves with rising OI & volume → Confirms trend strength. • New positions are entering to support the trend. Reversal Warnings • Price moves with falling OI → Possible short covering (in uptrends) or long liquidation (in downtrends). • Volume spike but OI drop → Temporary volatility, not a trend shift. 🔄 Sideways/Range Markets • High OI with low volume → Consolidation phase. • Breakout expected when volume surges. 📉 Weakening Trends • OI decreasing in an ongoing trend → Participants closing positions, trend exhaustion likely.

11. VWAP (Volume-Weighted Average Price) Cheat Sheet Key Facts About VWAP 1. Definition: VWAP = (Total Dollar Volume Traded) ÷ (Total Volume Traded) o It represents the average price at which a security has traded throughout the day, weighted by volume. 2. Used by Institutions & Retail Traders: o Institutions use VWAP to execute large orders with minimal market impact. o Retail traders use it to gauge intraday trend direction. 3. VWAP as a Benchmark: o Prices above VWAP suggest bullish sentiment. o Prices below VWAP indicate bearish sentiment .

12. VWAP (Volume-Weighted Average Price) Cheat Sheet Key Facts About VWAP 4 . Intraday Indicator: o VWAP resets daily; it is most useful for intraday trading strategies. 5. VWAP as Support & Resistance: o Acts as a dynamic support in uptrends and resistance in downtrends. 6. Not a Lagging Indicator: o Unlike moving averages, VWAP reflects real-time price movements with volume influence.

13. VWAP (Volume-Weighted Average Price) Cheat Sheet

14. VWAP (Volume-Weighted Average Price) Cheat Sheet Price vs. VWAP Implication Price above VWAP & rising Strong uptrend, potential continuation. Price above VWAP & falling Potential weakness, watch for breakdown. Price below VWAP & falling Strong downtrend, sellers in control. Price below VWAP & rising Possible reversal or short squeeze. Price crosses above VWAP Bullish signal, potential long entry. Price crosses below VWAP Bearish signal, potential short entry. Price oscillates around VWAP Market indecision, no clear trend.

15. VWAP (Volume-Weighted Average Price) Cheat Sheet VWAP-Based Trading Strategies ✅ Trend Confirmation: • If price is consistently above VWAP, look for long opportunities on pullbacks. • If price is consistently below VWAP, look for short setups on rallies. ⚡ Breakout Trading: • Strong break above VWAP with volume → Potential upside continuation. • Strong break below VWAP with volume → Potential downside move. 🔄 Reversion to Mean: • If price deviates significantly from VWAP, expect a reversion (especially in range-bound markets).

16. Seasonal Volume Tendencies Key Facts About Seasonal Volume Trends 1. Volume fluctuates throughout the year due to institutional behavior, holidays, and macroeconomic cycles. 2. Higher volume during earnings seasons (January, April, July, October) as companies report financials. 3. Low summer volume (June – August) as traders and institutions take vacations. 4. December’s "Santa Rally" sees increased bullish sentiment but lower volume in the second half. 5. Post-New Year (January Effect): Increased trading volume as funds reposition portfolios. 6. Quarterly futures and options expirations ("Quadruple Witching") drive short-term volume spikes. 7. Macro events (rate hikes, geopolitical news, elections) can override seasonal tendencies.

17. Seasonal Volume Tendencies Key Facts About Seasonal Volume Trends Time Period Volume Trend Implication January (First Two Weeks) High "January Effect" – Funds reallocate, bullish bias. February – March Moderate Steady institutional trading, fewer catalysts. April (Earnings Season Start) High Strong earnings-related volume. May – June Declining "Sell in May and go away" – Less institutional participation. July – August Low Summer slowdown – Range-bound markets common. September – October Increasing Volatility returns; market corrections often happen. November – Early December Moderate-High Positioning for year-end rallies. Late December – New Year Low Holiday slowdown, thin liquidity, potential for erratic moves.

18. Seasonal Volume Tendencies Trading Strategies Based on Seasonal Volume ✅ Use Low-Volume Periods for Mean Reversion • In summer & holiday periods, breakouts are less reliable—focus on range trading. 📈 Expect Increased Volatility in September & October • Be prepared for market corrections and high-volume swings. ⚡ Trade with Volume Surges During Earnings Seasons • High-volume breakouts & reversals are more reliable during earnings months. 🏦 Watch Institutional Repositioning in January • The January Effect often leads to price recoveries in beaten-down stocks.

19. Next Chapter 6 – Market Internals Section 3 – Trend Analysis Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia