Volume

[Kuzami]

What does volume tell you about a stock and its potential? What is considered good and/or bad for a stock and why? Wondering how this adds to the big picture when trying to guesstimate where a stock might be headed...

[greencat]

Originally Posted by Kuzami

What does volume tell you about a stock and its potential? What is considered good and/or bad for a stock and why? Wondering how this adds to the big picture when trying to guesstimate where a stock might be headed...

Volume can work both ways lots of it when going up and down. You hear it said all the time "it has good volume" Volume as an indicator is not very good IMO- but other indicators use volume in their equations.

Then what is the big fuss over volume-- It would be more accurate to say buying and selling pressure. Is the volume heavy with strong buys or sells.Were the buy shares more than the sell shares. Sometimes the market makers will knock the PPS down on hardly nothing so he can gather shares and vice versus. I would rather look at the last sale and try and determine if the stock is strong or not or gainining momentum. We should have that tool here with-in a few weeks..

A stock that has been dormat in the volume area and has just been chugging alone and then starts to get increased volume may be a clue that something is up.. Many people will look at the 10 day 30 day volume averages and see if the volume is increasing. I personally dont use it because I find other indicators better.

In the same token though we dont want to buy 500k worth of shares in a stock that has a 33k 10 day volume averaage unless its a forward looking event coming up or maybe good news exprected to come out soon.

I hope this answers you question
Thank you -volume confuses many newer traders

[Disqplay]

Volume is not the best indicator as cat said but when looking at breakout stocks which break a trend or power through a level of ressistance you will often note that the buying pressure on the stock is accompanied with 2 or more times the average daily volume. The higher the multiple of the daily volume usually indicates the higher the run-up in price will occur. Some traders scan the market just looking for positive volume ie increasing stock price that has a multiple of at least 4 times the average trading volume based on the 20 day average. It should be noted that they also use indicators like ADX or MACD.

Disq

[Kuzami]

Thanks, clears things up a bit. Had seen it mentioned fairly often and didn't know where it really came into play.

[Skydaemon]

I pay some attention to volume myself, but not for predicting stock prices.

If you only play like a thousand bucks at a time you're probably fairly safe even if you don't understand volume, but if you start pushing around a lot of money a stock's volume starts to matter a lot.

First, understand that pinksheets are very risky for problems with buying/selling related to poor volume, bigger exchanges have much less of a problem with this. If you're trying to trade with $100,000 on the pinksheets, you need to pay attention to volume, if you're only playing with $10,000, not that much of a concern.

In general, I use some rules of thumb.

-You shouldn't have much trouble acquiring or selling more than 10% of the average 10 day trading volume of a stock at good prices. More than that and you'll probably have to spread your trades over multiple days or be willing to pay more than the best entry point. That becomes a problem with fast moving or changing stocks.

So basically, if it's a fast moving stock expected to make it's move within a day or two, I'd never try to buy more than 10% of the daily volume and even that has a bit of risk. You _can_ get more than that if you're desperate but you have to really pay attention and be careful.

-I consider a stock with less than 100,000 daily volume as a thinly traded stock. Basically this means I pay really close attention when buying and selling and watch it like a hawk, because if you miss the trade you want, there might not be another one at that price that day.

-Less than 30,000 shares daily volume I consider almost untraded. I try to avoid this for liquidity reasons, if i did play one like this I wouldn't put more than $3000 in it in case I got trapped.

-I also multiply the pps by the daily volume to get an average $ amount flowing through a stock. If it's less than $100,000 I treat it above like it was thinly traded. A stock with 1,000,000 shares traded a day is not high volume if those shares are only worth .0002, that's only $2,000 a day and you'll risk getting trapped if you put a lot of money into that stock.

So, basically I categorize stocks according to the above, and it dictates the amount of money I'm willing to put into it. It doesn't tell me where the price will go, it's a measure of how likely I am to get trapped in it and unable to get out. This also relates to how careful or slowly I have to trade to not damage the stock price while trading.

I greatly prefer stocks with over $100,000 traded per day, and more than 100,000 shares per day, I get increasingly wary below that. I avoid any stock under .005 like the plague, but that's for other reasons.


Second.

There's a difficult thing you can do to find fast moving stocks. Basically, if you compare the average long term trading $ volume to the available float, when this gets "tight" as in the $ amount of the float is much less than the long term trading $ volume a stock is prone to moving very quickly. This is sort of a market mechanics failure which squeezes the price artificially and some groups of traders do it on purpose. The amount of $ required to do that depends on the market cap of the stock, and the $ size of the float.

Now that doesn't tell you that stock will go up or down, just that it can move very fast in either direction.

This is important for understanding price spikes and dramatic drops.

The deal is, if a stock rockets up, it is more likely to plateau there if people slowly bleed out and sell their stock to increase the float, as that lowers the speed it can move back down (or up further). This only works if people sell the stock without panic and don't undercut the price.

MM's can do this when they want to move a stock base price too as they have the capital to do without any outside help. That new base then becomes the default trading zone and they can unload everything safely there.

This is also why dilution is so horrible. It's a double whammy. First it drops the stock price because everyone fears it. Then it increases the float making it move less quickly. So even if people did buy it back in the same way they sold, it wouldn't return up very much because of the increased float.

It's also important to recognize that a stock you're in, is much more likely to rapidly move if it's float is "tight' relative to it's daily $ volume. If you get a sense that a stock will move like a rocket with only a little twitch of a push, you're probably in one of these. See tdcp for a perfect example.

Also, if a company does something like a stock issuance to the market (not as restricted shares) or if directors sell large amounts of stock on the market, and if the price stays stable (ie, the company puts it on the market intelligently), it will cause the plateau and drop the movement rate. This can stabilize high prices, or solidify low prices unless more capital shows up to swallow and hold that extra float.

=)

[Skydaemon]

Just a note, when I said people could "increase the float" I'm not meaning they're actually increasing the float, I guess I meam they're "releasing the float".

The float is the total shares out there for the market/public, some portion of which is "held" by traders and not resold, the remaining amount of shares being passed around in the market is what determines the movement of the stock, and that's what I sometimes call the float, because it's the part that matters. The portion of the float which is "held" may as well not be part of the float for the duration it's locked down. People will use the word "float" to mean both those things and really they aren't the same at all.

The true float is not to hard to figure out usually, but the amount on "lockdown" is really hard to figure out accurately, but it's the important part.

[CaptD]

A GREAT READ!
Anyone have any "new" info to add?

[stockpicker321]

High volume tends to confirm trends and lowvolume brings doubt. If there is a strong price movement, either up or down, the perceived strength of that move is based on its volume. The higher the volume is at the time of the price move, the more significant the move is.

[thegreatgate]

I also look at dollar volume, not just the number of trades.

If a stock averages 1 million trades a day but is trading at 1 cent then that means that very little money is flowing through (1 million trades times 1 penny = $10,000)

I like to see at least a couple hundred thousand dollar volume traded every single day.