Stock Volume

Discussions specific to trading the stock market.
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Grand Cayman
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Stock Volume

Post by Grand Cayman »

I was just wondering what average level of volume most of you look at to be considered a good investment oppurtunity. How low is "too low", and is there a specific level that is better for trend following systems? What other cues should be looked at when it comes to volume that would help in making an investment choice?

Thanks in advance...every idea or opinion helps me.
Jason Czech
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Post by Jason Czech »

I'm certainly NOT the final expert here, but I have noticed that Nasdaq stocks with an average daily volume under about 200k shares tend to have pretty wide intraday price I stay away from them. Plus, eliminating these greatly reduces the number of stocks that you have to track. According to the MSN Screener, there are about 950 Nasdaq stocks with an average daily volume of 200k shares or more, and 2450 under 200k shares traded daily.

I personally believe that Market Capitalization is a more important indicator than volume (though more difficult to track as well). My own simplistic logic is that it's easier for a $1B Mkt Cap company to go to $10B than it is for a $10B company to go to $100B, so I'm more inclined to follow small-mid cap stocks. This is one of the ideas I'm planning to test out in the near future.

Incidentally, the MSN Screener says that there are currently 277 Nasdaq stocks with an average trading volume > 200k, and a market cap between $1B and $10B. It's certainly nicer to work with a list of 277 stocks than a list of 3400 Stocks! Thought it's still questionable whether it is any more profitable. But thanks to software such as VT, WLD, & TR we can find out! ;)

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Post by pallbritton »

i screen for increases in volume. Often times stocks on the move experience big changes in average volume.
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Post by Kiwi »

Palbritton, Jason,

I would certainly look at volume changes if I was trading stocks. On the reasons why I would also require a minimum volume:

1) liquidity - higher volume increases your chance of exiting at the price you plan with acceptable slippage.
2) susceptibility to technical analysis - i believe (not rigorously tested) that low volume stocks are more susceptible to manipulation and also less likely to enlist crowd support when good technical entry signals like flags and multiple bottoms are encountered.

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Post by bmitchell »

Something i've done in the past is take the top 1000 volume stocks above 10$ a share and among those, choose the top 10 or 20 that have the largest atr as a percentage of their closing price. Volume seems to be important both to get narrow spreads as well as for technical analysis applying. For example, it doesn't seem to apply nearly so well to penny stocks.
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What % of a stock can be purchased w/out affecting price?

Post by LeviF »

Just out of curiousity.
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