Today we're going to be talking about the importance of trading volume. I'm also going to be discussing why you shouldn't automatically discount stocks that have a low volume and I'm also going to be leaving you with some ways that you can use volume in order to predict price action. As always, the only thing that I ask of you is that you hit that beautiful like button. And also if you see value in this video, subscribe for more Short, sweet and simplified videos on how to trade.

The stock market volume is a measure of how much a stock has been bought or sold within a given period of time. This is the volume indicator and it shows you the volume calculated per timeslot. So the reason this is important is because whenever you buy shares, there also needs to be someone or something on the other side to sell you those shares and vice versa. The price action that we see on these charts is the constant battle between the buyer and the seller both trying to get their hands on the best deal possible.

Now, the reason five-volume is important is because it allows for liquidity. It provides this liquidity because a lot of people buying and selling shares allow you to move into and out of positions very quickly and easily. For example, if you're trying to sell 2,000 shares of something in a stock that has a daily average volume of 2,000 then it's going to be very hard to sell your shares. And as traders, it's key to get into and out of your stocks as fast as possible over the course of a day.

There's only 2,000 shares created in total. How are you going to get your 2,000 shares sold within the time span that you needed? - Another problem is that if you're one of the only suppliers or sellers and you dump shares onto the market, your shares are going to be executed at lower and lower prices. So the next step is identifying what high volume means what level is high volume. So to me, high volume for a day trading position is any stock that is trading over 100,000 in shares for any swing position or position lasted more than a day.

As a general rule of thumb, I Like 50,000 shares, so the swing traded one is about half as much as the day trading one. in terms of what I'm looking for, the reason that volume isn't as important for swing positions is because these longer positions aren't so much about focusing on selling out the minute you see a reversal, but rather seen a more prolonged downtrend. And honestly, odds are strong that 50,000 and volume is probably to be more than you need anyhow. But I'd like to be a little cautious with this just because I know a lot of people won't get stuck in positions if they misunderstand what I'm talking about.

Now that being said, I highly recommend adjusting accordingly, but these are generally the rules that I go by. Okay, so this brings me to the next point: You may notice that volume fluctuates throughout the day. Also, daily volume can fluctuate from day to day, so you have to be really careful of this. So this is where a lot of people get confused and advanced traders often get upset when I'm referring to specific stocks on my watch list because like Oh Charlie you're really stupid.

You recommended low volume stocks I Talked about stocks that are going to be released in FDA approvals or trial results on a certain date and I also talked about different news that could lead to spikes. The thing is that a lot of these stocks do have pretty low volume for the rest of the year, So the key is you need to understand how timeframe is important in judging the volume of the stock. If you have a stock with big news coming out, it's likely that on the days leading up to, and especially on the actual day of the news, your stock is going to see a huge growth in volume. But don't take my word for it.

if you look at SC Y X we see lower volume all the way up to a few days before the announcement. Then we see a slight running up a volume a few days before and then boom on announcement day, a huge increase in volume. So my point is that discounted stocks with potential specifically because they have low volume is a dumb, non-starter strategy. Obviously, you don't want to buy a stock when there's low volume, but if you're under the impression that volume never varies much, you're greatly mistaken.

Now that being said, most of our day to day positions aren't based off singular announcements, but generally changes in price action and these situations we're going to need to find time points that have high volume to trade off of. Now generally there's usually two main points of the day that have the most volume and usually movement. That is the first 30 to 45 minutes of market open and the last 30 to 45 minutes before market closed. If you look at Apple you see this really huge difference in volume, but the market standards really not that polarizing.

I Just wanted to show you this example. so you have an idea of what I'm talking about. Let me pull up one that's a little bit more realistic in terms of what you're going to be seeing on a day to day basis. Part of Tesla displays a lot more of how on average you'll see a lot of these mainstream stocks trade.

We see a large amount of all throughout the day, but a noticeable difference in the first and last parts of the day. As a result, a lot of the opportunities are in this time period when you have the high volume, but there's also events such as news release or some sort of other type of press coverage that brings attention to the stock and then pushes up the volume. Sometimes, such a rapidly increasing stock price could also create volume as more and more people buy in or in the case of a rapidly downtrend in stock, you know, sell the stock. Also, for those of you who are wondering why I don't trade or recommend trading during pre and after market hours, that's super relevant to the topic at hand.

It's precisely because the volume is so low and the prices can be so sporadic since there's not many shares changing hands when the volume is performing at such a low level. A lot of the technical indicators that we use such as support resistance um, you know, even though RSI and the MACD they're just not going to be rendered very useful because of the fact that the price action is not very realistic. when you only have a few shares trading hands, when people are buying and selling, it's it's not gonna be a very realistic price. it's the market price is just all sporadic.

Let's now talk about how volume relates to price action. So if you have a stock that is climbing in price and increase in volume will generally push it more in that direction. Likewise, if it's decreasing, then an increase in volume will push it more in that direction. Of course there are exceptions to this, but generally speaking you'll find this to be true.

The reason behind this is intuitive as the stock price climbs higher for it and more people buy in or sell out. depending on the direction of the stock price, that moves the price action more in the direction that it was already going. Okay, so what should you do if you're trading a stock that had high volume, when you execute it into your position is down trending and you don't know what to do now? I Have a different approach to this than a lot of other traders, so you may want to find out what works best for you. But generally speaking, if I see that my ratio of downward potential to upward potential is in my favor, I'll generally hold my position until I see signs of a reversal just like I normally do in all of my trades.

However, if the volume is steadily dropping over time, I'm eventually going to sell out of the position. Regardless, it's because it's not any used to hold in up trending stocks that has literally no volume and you can't get out of position. But that being said, I generally trade stocks that have a huge amount of volume, so this isn't a huge problem for me, but with some penny stocks a lot of them, you will encounter this problem with. The reason for this is because penny stocks don't generally have the advantage of getting me massive amount of trader to algorithm coverage that mainstream stocks like Tesla and Apple and all the other ones do.

The exception to this might be a lot of the marijuana and penny stocks. They generally tend to get a lot more coverage than others, but overall, you might have this problem if you trade in any type of penny stock. So to mitigate this risk, you're going to want to be extra careful with volume when you're looking for a position in penny stocks. In summary, when you're trading stocks, you want to have at least a hundred thousand in volume in terms of a day trading position and fifty thousand in volume.

In terms of a swing trading position, the average volume is a good place to start, but in terms of news reactions and earnings, other things that are media coverage and emotionally-driven a lot of those times, it doesn't really matter as much as long as it has growing momentum in terms of volume on the time leading up to that. But overall, with most different positions, you're going to want to have a hundred thousand in average volume and fifty thousand for the swing positions anyways. I Hope this video is helpful if you have any more questions whatsoever. I Highly recommend that you check out our Zip Trader Circle group.

It's a free Facebook group. We answer a lot of different questions and there's so many great people on there. so I Highly recommend that you check it out. Have a great day folks and I'll see you in the next video.