Day Trading: Why is Volume Important

Posted On: 23 Dec, 2017 07:26:57

Volume is important in day trading because stocks do not move without volume and the stock must move for you to make money. When a stock’s current volume is larger than its average volume it catches a traders attention. This tells us that something is going on that has traders interested and requires further investigation.

When a stocks is increasing in the volume, that stock has momentum. Momentum presents an opportunity to make money if you can time your entry correctly. Volume also helps us determine when stock's momentum run may be over, if you start to see the stock's volume decreasing it may be a sign that the run is over.

For example, about a week ago using my pre-market scanner, I noticed that $NXTD stock price was up with lots of volume. This stock was also trading under $2.50 on December 15, 2017 and on December 20, 2017 the stock broke above $2.50. The next day's pre-market scan we noticed that $NXTD stock had rose to around $3.00, had volume, and news. These 3 signs are what we are looking for in a stock and they were all determinded from our pre-market scan. After checking the stock's float I knew I could possibly put myself in a position to profit form this. If you look at the picture below you can see the stock i now almost at $5.00. 

 

great pre-market setup

Stocks with low volume we want to eliminate. Look for stocks trading with volume of at least $200,000 but stock’s trading with volume over a million are ideal. The more volume the quicker the stock moves which allows you to enter and exit you position quickly.

Stocks do not just move for no reason If a stock has unusual high volume there is a reason. Use volume to guide your need for research.

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