High Volume Stocks Explained
Stocks fluctuate weekly if not daily which make it risky to most investors. One top indicator of a favorable opportunity in stocks is the high volume in stocks. Doing some diligent research in high volume stocks will benefit you in becoming one of the best investors in the market.
Seasoned investors do have high volume stocks on their portfolio, changes in trading volume also tell you something’s going on, and indicate the stock price is moving. Traders don’t buy and sell in large volume without the stock’s market price surging or dropping, depending on whether fear or greed is dominant.
When a stock’s volume surges from 1 million to 10 million shares, that may indicate a situation you can take advantage of. However, maintain your trading discipline. Look for the trading patterns and chart formations that work.
Lots of traders want to know: What is a good average volume in stocks? For high volume stocks, I find 15-20 million shares per day too high. That said, 2,000 to 50,000 shares a day in buy and sell orders is just too low. Stay away from these traps! The market makers easily manipulate these stocks.
Remember, avoid stocks with volume that’s too high or too low. Just look for stocks with a high volume that indicates price movement.
What Are High Volume Stocks?
High volume stocks are those that have a high trading volume. This is determined simply by the number of shares that are traded in a given period of time. Trade volume is assessed only in terms of the total shares that are bought and sold, not in terms of the number of transactions.
Therefore, 10 transactions of 100 shares each gets the same weight as 100 transactions of 10 shares apiece. While you can find charts that average the trading volume over weeks or months, this factor is typically considered only in terms of the previous day’s results.
The number of shares that are traded each day is publicly available, so you can easily determine which stocks have the highest volume at a given time. There are many resources that produce daily lists of the top high volume stocks so you can access this information quickly and easily.
While stock volume is just one of many factors that you should consider, it’s worth checking the stock volume leaders each day. Identifying the biggest volume stocks today can point you toward some of the best investments.
Why Are High Volume Stocks Important?
Evaluating stocks by volume traded will give you some important insights. You already know that the stock volume leaders are those that are most popular in a given day, but it’s also worthwhile to investigate why.
A high trading volume typically correlates with some other important factors. These shares may be in high demand because:
- A news event has created more investor interest.
- There’s an increasing price trend.
- The stock is consistently popular.
High volume stocks have some typical characteristics. While there can always be outliers, you can generally assume that high volume trading stocks have lower volatility. When stocks change hands often, they tend to experience slow price movements.
Whether the stock price goes up or down, it will probably do so in small increments, which reduces your risk. It’s low volume stocks that see the bigger percentage jumps.
High volume stocks also have a smaller spread. With so many orders taking place at a given time, the spread for a high volume stock will be small. The spread is the difference between the lowest ask price and highest bid price.
With high volume stocks, the numbers are nearly identical. You might see a spread of 0.0125% for a high volume stock, while a low volume stock will have a spread closer to 0.5%. Trading in high volume stocks, your market order will be filled close to the market price.
As you’re evaluating high volume stocks, it’s important to compare the daily trading volume to other factors. Asking the right questions will help you accurately evaluate the stock’s potential.
How To Invest in High Volume Stocks
Investing in high volume stocks is practically required for a strong portfolio. While you don’t have to keep your selection exclusive to high volume stocks, you should include some of these. The following tips will help you do so with the best chance of success.
- Avoid penny stocks. It’s easier to manipulate the volume with stocks that are trading at a very low price know as the pump and dump scheme. However, volume is a stronger indicator of profitability when the stock has a dollar volume of $20 million or more.
- Watch the trends. High volume and low price movement against a trend indicate that the trend is strong. High volume with strong price movement against the trend indicates that a reversal is probably coming. Keep an eye on the trends and buy and sell accordingly.
- Balance low volume picks with high volume stocks. High volume stocks are generally a better option, but a low volume stock can yield outstanding results if you’re able to make a good prediction. New companies often have low volume stocks but great potential. Balance your portfolio for the best chance of success.
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