3 Steps to Finding This Kind of Stock
We both know I love trading. I think investing is one of the best things you can do for yourself. Which is why I put out these issues — to help you be a better trader. While you might not find a two-day issue on high volume stocks to be the most exciting thing in the world, it is all meant to help you improve.
And that is something you should get excited about.
Changing your life, bettering yourself, taking control of your future.
But it doesn’t happen overnight.
And it isn’t easy.
It starts with having the right resources (like my issues!), lots and lots of studying, dedication, and the drive to get there.
So let’s kick off today with how you can find high volume stocks in three easy steps…
How to Find High Volume Stocks in 3 Steps
Here’s an efficient three-step plan you can use when you’re hunting for high volume stocks…
1. Look for the High-volume Penny Stocks That Have Gone Up the Most Since Yesterday’s Closing Price
Price movement is more important than trading volume. And stocks that have surged in one day have almost certainly had a corresponding rise in trading volume. If they don’t, you may want to avoid them.
Stocks that are up big should have high volume pushing the stock higher. If a stock is up 5% on below-average volume, it could be a trap set by the market makers to get rookie traders into bad positions.
Remember that volume validates the price movement. A large increase in a stock price MUST be accompanied by an equally large increase in volume.
2. Look at the Internet Message Boards
Yes, seriously. I’m looking for news that checks out and for companies that are being hyped.
Don’t ever believe people on these sites until you’ve done your own research. Assume they have a hidden agenda.
Go in with eyes wide open and your hand holding tight to your wallet. If somebody’s pushing a small stock higher, maybe you can hitch a ride — just don’t believe you’ve found the next Apple.
3. Use a Software Platform with Killer Scanning Tools
My personal favorite is StocksToTrade.
But the good thing is, there are plenty of penny stocks with high trading volumes. You need to analyze the opportunities so you find the ones worth trading.
The right software can help you find them.
Technical and Fundamental Analysis
Fundamental analysis is the process of researching a stock based on the fundamental value of the company.
That is, you look at such factors as what sector the company’s in, whether the company is one of the sector’s leaders or laggards, whether it’s making or losing money, and a hundred other factors.
Fundamental analysis is what Warren Buffett does, and it works great if you can convince a few hundred or thousand people to let you manage their money, like he did.
If he spent his life investing just his own money (like most of us do), he’d probably be richer than average but he wouldn’t be a mega-billionaire.
And he would have had to work a day job until he was 40 or 50 or so. No thanks. Next!
Technical analysis means studying the stock’s chart indicators.
The most important is obviously its current market price. And the chart shows you the past price moves. You can see at a glance whether it’s been going up or down, or just floating sideways.
The record of a stock’s past price movements creates recognizable patterns. These indicate the collective emotions of the market toward the stock and how traders have been buying and selling in reaction.
Those patterns tell a story about the stock’s past, and can help predict its future. The price action normally forms a trend line that’s headed either up or down. If a stock breaks through a trend line, that’s significant.
Looking at a chart is essential for determining whether the stock’s trading volume is high or not. And it contains lots more information.
Markets are a form of crowdsourcing, and technical analysis is how you read what the masses of other traders and investors are saying about a stock and its future.
Clearly, researching, studying, and analyzing stocks includes crunching a lot of numbers, and computers are a lot better at that than people.
While software can bring up company information and news, you’re ultimately responsible for deciding whether that makes a company a good opportunity.
Yes, software can draw trend lines and calculate moving averages, but YOU have to determine what the indicators are saying about the potential trade.
- Is this stock a good trading opportunity or not?
- What do all the patterns and numbers actually mean?
- Is volume where we want it or is it a possible fake-out?
Does High Volume Mean a Trade Is a Good Idea?
High trading volume is one factor to consider when you’re making a trade — but it’s not remotely the only factor.
Look at the big picture. Has there been some important news about the company? Sometimes, this makes a huge difference.
If a stock’s trading volume is high just because it’s always high, but the price isn’t trending or breaking out, forget it.
High volume is good for confirming breakouts are real, and the price will continue to surge.
Look for your indicators and chart patterns, then see if a high volume confirms the breakout!
Becoming More Confident About Trading High Volume Stocks
As you’ve learned, a stock having a high volume of trades is a good thing, but that, alone, isn’t a sign of a sure thing. That’s a common beginner’s mistake.
As you study and practice trading, you’ll become more confident about trading stocks.
You’ll get more adept at spotting breakouts and the chart patterns that tell you when a stock is about to smash through a point of resistance.
A higher-than-normal volume can also tell you when a signal is valid. It means a lot of other traders are getting in on the action because they want a piece of it.
The big takeaway: Don’t trade stocks with a low volume of 50,000 shares or less.
What About Low Volume Stocks?
A stock with a volume of around 500,000–1 million shares is all right to trade up to around a few thousand shares. Just make sure you stay on top of it so you get out fast if the price starts to move against you.
If there’s big news about a stock with a low volume, that’s a red flag. It could mean someone is attempting to run a pump and dump scheme with it. Don’t get dumped on!
Always Avoid Stocks That Are Too Illiquid for Any Trade
Illiquidity is the main problem with low volume stocks. When you buy, your own order raises the price you pay.
When you want to sell, nobody wants to take your order. You can lose a bundle just trying to run for the exit.
Stay away from all stocks trading at 50,000 shares a day or less, period.
The Bottom Line
Congrats — you made it to the end of the lesson! Now I’ll wrap this all up in a nice, tidy package for you …
- Avoid all stocks that have low liquidity.
- Do not trade high volume stocks just because they have a high volume. Look for chart patterns and other indicators that signal a good trade setup.
- Volume should go up when a stock’s price makes large moves in a day. Use high volume as a way of confirming the price action. It supports the breakout from the trend line or resistance level.
- If a stock’s price jumps or falls a lot without a corresponding surge in trading volume, that’s a red flag.
- A spike in trading volume should also accompany news like an earnings surprise or product launch.
- You can find stocks to trade by looking for those with large percentage increases in trading volume. That could indicate a major surge in demand for the stock, and, therefore, a large movement in price. Happy hunting!
— Tim Sykes
Editor, Penny Stock Millionaires