Technical Analysis 101: Buying Pressure
Technical Analysis 101: Buying Pressure
Buying pressure can basically be defined as increasingly higher demand for a particular stock's shares. This demand for shares exceeds the supply and causes the price to rise.
Technically speaking, buying pressure can be seen as higher highs and higher lows in a security's price as it trends upward and gains bullish momentum.
It can also be seen in the stock's strength as it reaches major support and resistance levels. Buying pressure can come into a stock at support levels, which prevents any further decline.
As traders say, "What fails to break down goes up," and eventually breaks out. The strength or weakness of a stock determines how much buying or selling interest will be required to break support and resistance areas.
In addition, the more trading volume at any level, the stronger the support and resistance levels will be. This is also a sign of buying pressure coming in to a stock.
You can see buying pressure come into a stock when it starts to close near the highs of the day (HOD) for a consecutive number of days (typically three days). This indicates that the bulls are driving up the price.
If the overall market conditions remain favorable, a stock with confirmed consecutive closes near the HOD will be viewed as bullish and will be an excellent potential long.
Increasing volume is typically triggered by institutional buying. This can be seen in large block trades of let's say 50,000 shares or higher, or many small block trades.
In addition, the technical indicators will confirm buying pressure with positive divergence and a move up along with price.
Buying pressure can also come into a stock when it is heavily shorted. When there are too many shorts in a specific stock, it can cause a stock to reverse upward or to continue to rally upward as stop-losses on short positions are triggered by relatively light buying pressure.
Finally, increased market volatility can also add fuel to the fire when it comes to buying pressure.
