The Indicator You Can’t Trade Without
Dear Penny Stock Millionaire,
Yesterday, I explained how volume impacts your trades, but now that you understand how it impacts you, how do you use that knowledge to trade better? Well…
There are a few ways you can look at volume as a day trader. But to really get the full picture, stock charting software is a vital tool.
A lot of charting programs let you do things like set a moving average for volume. This lets you find out when there’s an exception. If you notice a big change in volume, it could be a sign that there’s something going on with a stock that’s worth watching.
Stock Volume Spike Alerts — Trading Volume Analysis
Study, study, study.
Research, research, research.
You shouldn’t jump into any trade before you’ve done these things. But that doesn’t mean you have to be a slave to your laptop.
It’s no secret: I love the tools in StocksToTrade. I can use it to set various criteria to look at things like volume over different time periods or volume percent gainers. I can really get a better in-depth view of what’s going on with a stock.
Full disclosure: I was part of the team that created STT. I tried a ton of platforms over the years, but none of them matched my needs. We created the platform that really does everything a penny stock trader like me needs.
You can create scans to look for volume gainers or evaluate volume averages to see when there’s something notable going on with a stock. This can help you spot opportunities.
But remember: the screener can help with the numbers part … it won’t be responsible for the trade. Software can help you with trendlines, indicators, and moving averages, but you’ve got to make the final call.
Volume Trading Strategies — How to Use Volume to Improve Your Trading
OK, so how about some specific tips and strategies? Let’s go.
High Volume Doesn’t Tell the Whole Story
High volume can be a sign that the stock has something interesting going on. But use it as a piece of the puzzle. It won’t tell you the full story.
Do more research to see if there’s any big news, patterns, or other indicators that could tell you this trade is a good idea.
Low Liquidity Is NOT Your Friend
Remember: liquidity means stock shares are flowing. You need enough liquidity to ensure that you can get in and out of a trade easily.
Volume and Price Moves Should Be Linked
If a stock’s price is making big moves, the volume usually follows. Use volume as a means of confirming the price action. This is a way of supporting a stock that’s breaking out or through resistance.
If a stock rises or falls in a big way without a volume jump in kind, it could be a big red flag.
Volume Follows News Catalysts
A catalyst can bring a lot of attention to a stock, and often that equals price movement. So sometimes, if you see a rise in volume, it can alert you that this stock could make a big move soon.
Look for Volume Percent Gainers
Stock charting programs can help you look for specific criteria like volume percent gainers. This can help you find stocks that suddenly experience high demand and potentially big price movements too.
Frequently Asked Questions About Stock Volume
Got something you want to know about stock volume? Here are answers to some common questions.
What’s a Good Volume for Stocks?
I kind of hate this question because it’s relative. A ‘good’ volume will depend on the stock. But that said … for penny stocks it’s generally about finding the Goldilocks zone. You don’t want too much volume or too little.
Every trader has different criteria or opinions on the subject. But in general, I find 15–20 million shares per day too high.
Then again, a stock trading just 2,000–50,000 shares per day is too low. You’re not guaranteed to get your buy or sell order filled. It’s also really easy for a market maker to control a stock like this.
That leaves a lot of room in the middle. Which is part of why stock volume is only part of the picture. Trade smarter: look at a variety of factors and create a detailed trading plan.
How to Find the Volume of a Stock
This part’s easy. Pretty much every stock chart — whether you’re looking on Robinhood, Yahoo! Finance, or StocksToTrade — will show trading volume as one of the standard data points.
How Is Trade Volume Calculated?
Trade volume is calculated by determining how many shares change hands in a given time period.
To figure out the average trading volume, take the volume over a period of days, then divide the number by that number of days.
This can help you figure out what level of volume is usual or unusual for the stock.
What Is a Stock Volume Tracker?
Most charting software programs let you set a moving average or scan for volume. This can help you find anomalies and alert you to potential trading opportunities.
But remember: if you see a huge surge in volume after a long period of low volume, it’s not always a good thing. Be very wary of potential pump schemes! Don’t be left holding the bag.
The Final Word on Stock Volume
As a trader, you need to piece together as many pieces of information as possible to make a case for your trade. Looking at stock volume can be part of that process.
There’s never a sure thing in the stock market. That’s why it’s so important to be vigilant about doing research on a given stock. It’s also why you have to build your knowledge account before you start building your monetary account.
Learn everything you can to start making smarter trading decisions. Then keep learning. Your market education never ends because the market changes and evolves all the time.
Editor, Penny Stock Millionaires