I've had a lot of questions about volume lately, so here's an
write up from my old website back in 2003. It discusses how
to calcuate the average daily volume.
-----
Every week we scan 1000's of stocks via our chart programs to
bring you a comprehensive list of stock picks with charts that
exhibit specific patterns. Why waste your time spending countless
hours scanning the market for picks, when you can let us do the
work for you? Our specialty is stock pattern recognition. Whether
you like breakouts, flags, triangles, wedges, head and shoulders,
etc., you'll find our list to have what you are looking for.
Some basic rules to follow while trading breakout/breakdown
patterns:
1.It's a good idea to avoid entering new positions
the first 15 minutes of the market open.
2.Only trade breakouts that have excellent volume
% relative to its 60 day volume average. I generally only trade
breakout stocks that exceed their 60 day moving average. Some
programs like Medved Quote Tracker already do this for you. The 60
day moving average can also be found on Yahoo Finance under
detailed quotes. Trading breakouts with big volume % greatly
enhances your chances for a successful trade. This is especially
true when Day Trading or Swing Trading. (Please note: Shorting a
stock doesn't rely on volume as much as longs do. When shorting, I
don't watch the volume near as much.)
Here is a simple formula that I use to decide how the volume %
is acting during the day:
[total volume
/hours into the trading day
]multiplied by 6.5
(trading hours in a day
)
You then compare your result to the 60 day average daily volume
for the stock.
Here's an Example:
Stock ABC has a breakpoint of $10.25 with a 60 day average
volume of 500,000 shares. At 11:30 eastern time, stock ABC broke
the $10.25 price resistance (breakpoint) and there has been 100,000
shares traded so far.
Should you go long this breakout stock since it has broken the
$10.25 resistance? The answer would be NO, because by using the
following formula, the adjusted volume is only 325,000 shares,
which does not meet or exceed the 500,000 share 60 daily average
volume.
100,000 / 2 = 50,000
50,000 x (6.5) = 325,000
3. Do not hold a position into earnings as this
can cause major losses. True if earnings are good it can provide
significant gains but is it worth it? My experiance is no.
4. Do not overweight your $$ into one position. It
is a good idea to keep minimal $$ in one particular position.
5. Do not enter a position early. Wait for a
pattern to setup, make sure it has excellent volume %, then only
enter after the price has traded through the breakout price.
6.It's a good habit to sell 1/2 your position on
the initial pop and reset stops at entry to ensure a profitable
trade. Always use stops as they help avoid disasters. Avoid
averaging down if a position goes against you. Maintain proper
stops and realize that if the stock comes back up one can always
reenter.
That's an example of using technical analysis on the profit
curve; this can be down in Tradestation or Ninja, etc. Over
the weekend I'm going to add some examples of this in the
Mechanical Systems section. Also I plan to make some more
educational videos on the systems. Also I will update all the
statisics for the systems and maybe I'll add a new
system.
One of the next major things on hte website that I will be
working on is a new Premium Conent section
Breakout Stocks and Volume
Posted by matt on 30th of Jul 2009 at 11:15 am
I've had a lot of questions about volume lately, so here's an write up from my old website back in 2003. It discusses how to calcuate the average daily volume.
-----
Every week we scan 1000's of stocks via our chart programs to bring you a comprehensive list of stock picks with charts that exhibit specific patterns. Why waste your time spending countless hours scanning the market for picks, when you can let us do the work for you? Our specialty is stock pattern recognition. Whether you like breakouts, flags, triangles, wedges, head and shoulders, etc., you'll find our list to have what you are looking for.
Some basic rules to follow while trading breakout/breakdown patterns:
1.It's a good idea to avoid entering new positions the first 15 minutes of the market open.
2.Only trade breakouts that have excellent volume % relative to its 60 day volume average. I generally only trade breakout stocks that exceed their 60 day moving average. Some programs like Medved Quote Tracker already do this for you. The 60 day moving average can also be found on Yahoo Finance under detailed quotes. Trading breakouts with big volume % greatly enhances your chances for a successful trade. This is especially true when Day Trading or Swing Trading. (Please note: Shorting a stock doesn't rely on volume as much as longs do. When shorting, I don't watch the volume near as much.)
Here is a simple formula that I use to decide how the volume % is acting during the day:
[total volume /hours into the trading day ]multiplied by 6.5 (trading hours in a day )
You then compare your result to the 60 day average daily volume for the stock.
Here's an Example:
Stock ABC has a breakpoint of $10.25 with a 60 day average volume of 500,000 shares. At 11:30 eastern time, stock ABC broke the $10.25 price resistance (breakpoint) and there has been 100,000 shares traded so far.
Should you go long this breakout stock since it has broken the $10.25 resistance? The answer would be NO, because by using the following formula, the adjusted volume is only 325,000 shares, which does not meet or exceed the 500,000 share 60 daily average volume.
100,000 / 2 = 50,000
50,000 x (6.5) = 325,000
3. Do not hold a position into earnings as this can cause major losses. True if earnings are good it can provide significant gains but is it worth it? My experiance is no.
4. Do not overweight your $$ into one position. It is a good idea to keep minimal $$ in one particular position.
5. Do not enter a position early. Wait for a pattern to setup, make sure it has excellent volume %, then only enter after the price has traded through the breakout price.
6.It's a good habit to sell 1/2 your position on the initial pop and reset stops at entry to ensure a profitable trade. Always use stops as they help avoid disasters. Avoid averaging down if a position goes against you. Maintain proper stops and realize that if the stock comes back up one can always reenter.
That's an example of using
Posted by matt on 31st of Jul 2009 at 10:15 am
That's an example of using technical analysis on the profit curve; this can be down in Tradestation or Ninja, etc. Over the weekend I'm going to add some examples of this in the Mechanical Systems section. Also I plan to make some more educational videos on the systems. Also I will update all the statisics for the systems and maybe I'll add a new system.
One of the next major things on hte website that I will be working on is a new Premium Conent section
thanks for the explanation!!
Posted by tarzan on 30th of Jul 2009 at 12:00 pm
thanks for the explanation!!