The Psychology of Price Action and Volume

 

11/7/2025 - The largest market participants are very concerned with value.  When a stock or other asset moves higher or lower on elevated volume, it's generally a clear sign that institutions are revaluing that asset.  The traders I work with spend a good deal of time scanning news and talking with informed participants to see if the emerging story might have legs.  Where the beginning trader might get down because they "missed" the move, the informed trader recognizes that a breakout in volume and volatility that takes us to a new price level could be the start of opportunity.  This is particularly the case when the move on elevated volume is occurring in a specific sector ETF, such as consumer discretionary stocks (XLY).  Such moves often flag sector rotation among large money managers.  Rarely is such rotation a one-and-done phenomenon.  When institutions engage in a broad rotation, it's a sign that they're seeing strength in one part of the economy and weakness in other parts.  An oversold sector that does not show subsequent buying interest is telling a story.  A sector that moves higher on elevated volume and barely corrects is also telling a story.  As in chess, we succeed by entering the mindset of those we're playing against.  We don't want to become so focused on our own psychology that we miss what's happening on the chess board.