If you're looking for news featuring the $4 stock with an average daily volume of 89,000 shares a day, chances are that you won't find it in either the IBD Weekly newspaper or in key stock lists.
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Both price and volume are key factors that help fuel big moves in stocks. Let's focus first on volume.
Thinly traded stocks tend to be extremely speculative and unpredictable. Because there is such a limited number of shares, a large purchase by a mutual fund or another big investor can cause a huge spike in the price.
By the same token, if the investor decides to sell, the share price will likely tank. Neither scenario is ideal for individual investors. That's why IBD considers a stock that trades fewer than 400,000 shares per day, based on a 50-day average, as thinly traded.
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When scouring for watch-list candidates, keep in mind that price matters, too. Unscrupulous promoters of penny stocks can easily manipulate a stock trading less than $5 or $10 a share.
To reduce such risk, it's best to stick with stocks that have a minimum dollar volume of $20 million to $25 million. In fact, the more, the better. Institutions tend to get more involved in a stock with daily dollar volume in the hundreds of millions or more.
Apple (AAPL), currently a member of IBD Leaderboard, currently trades more than 31 million shares per day on average. That huge turnover hasn't stopped the stock from rallying more than 97% since the iPhone giant broke out in January 2017 and cleared a first-stage cup with handle with a 118.12 proper buy point.
You can calculate the dollar volume by multiplying the stock price by the average daily share volume. So a stock that trades at 60 and moves an average of 400,000 shares a day has a dollar volume of $24 million.
When Vipshop (VIPS) debuted on the NYSE on March 23, 2012, it was priced at 6.50 a share. At the one-year mark, the Chinese stock traded at 28.61 with a daily average volume of 374,800, for a dollar volume of $10.7 million. That would have been considered a highly speculative play.
But by the time the stock cleared a two-month base in July 2013, it was trading near 39 with average daily volume of 680,000. Dollar volume topped $26.5 million.
Vipshop rallied as mutual funds snapped up shares. At the end of Q2 2013, 80 funds owned 97 million shares. As of Q1 this year, 523 funds held 225 million shares.
Today, Vipshop is working on the right side of a gigantic bottoming base.
A version of this column was first published on June 2, 2015. Follow Gondo on Twitter at @IBD_NGondo for more on ETFs, growth stocks and stock market insight.
The RVOL is displayed as a ratio. So if it is showing 3.5 relative volume, that means it is trading at 3.5 times its normal volume for that time period. As day traders we like to see RVOL at 2 or higher with a positive catalyst, low float and ideally a higher short interest.
Up/Down Volume Ratios greater than 1.0 are considered to be Bullish while ratios less than 1.0 are regarded as Bearish. The following is an example of how this indicator is calculated.
It is recommended that day traders look for stocks with at least one million in volume. Higher volume also means it's easier to buy and sell stocks because more people looking to buy or sell. In a chart, you will typically find a volume bar chart at the bottom, as seen below.
Average Daily Trading Volume (ADTV) refers to the number of shares of a particular stock that, on average, change hands during a single trading day. Significant deviations from the ADTV usually indicate greater or lesser buying or selling interest in the stock from large institutional investors.
To reduce such risk, it's best to stick with stocks that have a minimum dollar volume of $20 million to $25 million. In fact, the more, the better. Institutions tend to get more involved in a stock with daily dollar volume in the hundreds of millions or more.
Any level of volume that provides investors with specific insight into a security's price action (and a sense of the trading interest in that security) can be thought of as a good trading volume.
What Are Some Popular Volume Indicators? Popular volume indicators include three mentioned above—on-balance volume (OBV), Chaikin Money Flow, and Klinger oscillator—as well as the volume price trend indicator and Money Flow Index.
Analyzing the volume indicator involves understanding the patterns created by the trading volume and their relationship with price action. High trading volumes often indicate increased market interest and liquidity, whereas low volumes suggest a lack of interest or limited market activity.
Volume indicators can detect trend reversals by analysing price movements and trade volumes. A price increase with low volumes might indicate the beginning of a bullish trend, whilst a price decrease with large volumes could indicate a shift to a negative mood.
On average, day traders with $10,000 accounts can make $200-$600 per day, with skilled traders aiming for 2%-5% returns daily. So, it is possible to achieve a daily profit of $200 to $600 with a $10,000 account.
Many long term investors, for example, institutional investors like mutual funds prefer stocks with higher volumes. Intraday traders, who have to square-off their position in a relatively much shorter time span, look for stocks with high trading volumes.
A share with high relative volume indicates increased interest in the stock, which makes it worth monitoring in case a trading opportunity appears. Some traders look for the RVOL to be at least above 2.0 or double the normal average volume to indicate the stock is 'in play' and attractive to trade.
If the stock was held for less than a year, ordinary income tax rates apply. So the two ways to make money with stocks are Dividends and Capital Gains. Investors should have a clear understanding of their strategy before purchasing stock so they know the best way to evaluate any potential stock purchase.
Trading volume is represented through candlestick charts. You can find this information at the bottom of an asset's price chart, which reflects the number of contracts affected and shares traded during a particular period. The total volume of a stock is made up of the buying volume and selling volume.
A relative volume of 5, for example, means that the current trading volume is 5 times greater than the average volume. If its relative volume is less than 1, it means that the current day's trading volume is less than the recent average for that stock.
Trading Volume (Average 10 day) The average number of shares that are traded on a daily basis over the last 2 weeks of trading. Trading volume is used to validate a market move either up or down by comparing the volume with the price movement of a security.
A good moving average period varies by strategy and market; however, the 10, 20, 50, and 200-period moving averages are popular choices among day traders for their ability to highlight short-term trends and longer-term directions.
Introduction: My name is Kelle Weber, I am a magnificent, enchanting, fair, joyous, light, determined, joyous person who loves writing and wants to share my knowledge and understanding with you.
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