Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Thursday, January 19, 2006

Intraday Trading Volume Question

MSW Member Question – Part #1:

Hello Chris,

I am new to MSW and also to investing in general. I had a question regarding breakout volume. Intra day, how is it possible to determine that there is above average volume? Let's say that early in the morning, the price is around 17.50 and the pivot/breakout point is 17.75, how is it possible to determine that there is above average volume for this particular stock so early in a trading day? I'm a bit confused. Also, I attend school for major parts of the trading day, is it even possible for someone like me to focus on breakouts if I can't be at the computer monitoring the stock and volume?

By the way, I'd like to say thanks for all your great screens. I have learned so much in just a few days.

Talk to you soon

My Answer:
There are two ways to go about this:
  1. I use Investor’s Business Daily (investors.com) volume calculation tool to simulate end of the day trading based on the total volume at a certain point during that day’s time. The tool is not perfect but it saves me time from performing my own calculations.

  2. Another way is to project the end of the day’s volume based on the number of shares traded at a certain point in the day.

For example, If XYZ averages 2 million shares traded per day over the past 50-d days, we can assume that the volume will be 50% larger than the average if the stock is trading 1.2 million shares by noon.

The earlier in the day we see the breakout above the pivot point, the tougher the task becomes to estimate what the final volume total will be when trading closes. If the average is 2 million shares per day and the breakout occurs at 10am with only 200k shares traded, we will not know what the final tally will be. In this type of a situation, I buy the stock anyway to grab it as close as possible to the pivot and then make my judgment when the day ends. If the volume was weak or if the stock reversed during the later hours, sell the following morning. Most individual investors use discount brokers so a $10 or $20 trading fee should not stop you from making the correct moves. If $20 hurts your trading stake, you should not be trading at all.

Also keep in mind that most stocks will trade move heavily during the first and last hours of the trading day so this will most likely skew the numbers when trading begins. Another important volume statistic to watch is the total weekly volume count as most stocks have higher volume during the breakout week than the prior week. IBD has been quoted as saying over 90% of all breakout stocks have higher weekly volume during the breakout than the prior week of trading.

    Piranha

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