Gold Trading Boot Camp: How to Master the Basics and Become a Successful Commodities Investor

CHAPTER 22

Volume, On-Balance Volume, and Money Flow

Volume, on-balance-volume (OBV), and money flow go hand-inhand in providing valuable information to traders, speculators, and investors.

Money flow can be identified from data produced by Dow Jones & Company, as provided for individual stocks.

I watch the data to help determine the overall investment demand and sentiment within each market sector. This information is particularly valuable in the precious metals sector because the mining stocks are not widely traded issues and are mostly shares with a relatively miniscule float.

When the money flow figures for mining shares, petroleum shares, or banking shares rise rapidly and reach into the billions of dollars over time, I begin to take notice. When the money flow first starts to rise, this signals the early stages of investment demand for precious metals from equity market players and longer-term investors.

When headlines are blasting the win-win merits of some particular sector on a “can’t-lose” basis and money is pouring into the individual shares, I begin to take notice from a contrarian standpoint. Often, I can combine a study of historic volatility and money flow to identify when the odds are intensifying for a trend reversal or a significant corrective move.

FIGURE 22.1 Rio Tinto PLC RPT: weekly close

Source: Weldononline.com.

Rapid money flow that has reached high nominal ...