Wednesday, July 12, 2006

The importance of Volume

We cannot emphasize enough the importance of volume in trading stocks based on chart patterns. Most trading programs have a volume percentage tool which tells you at any given moment what percentage of volume a stock is trading in relation to its average volume (usually based on 30 day and 90 day averages). For example, let's say stock HCPG has been trading 1 million shares on average for the last 3 months. That means by the end of the day, the volume % indicator will most likely be near 100%. Now imagine HCPG is forming a very nice base under her trendline that triggers through a break of 50. The market opens and you notice that your stock is getting very close to 50 and that the volume indicator is reading 25% at 9:45 AM. That means that she has traded 25% of her entire day's volume already in the first 15 minutes of trading. Be interested. Be very interested.

If you do not have a volume percent tool you might want to check out some of the more popular trading programs. We recommend
QuoteTracker as it is will give you a very good idea of how to use this tool, and to top it off, it's free.