Page 198 - THE MARKET WHISPERER

194 PART 7 - Indicators: The Trader’s Compass

In summary, a professional trader looks for stocks trading over one
million shares per day on average, but also with volume better than the
prior day’s volume.

How can we know, after an hour of trading, whether the day volume
is going to top one million? Switch quickly from the intraday five-minute
candle chart to the daily chart, and check the volumes over the previous
few days. With just a glance you should be able to see whether volume
is only several thousand shares, or above one million. If the volume is
borderline, compare the volume of the current day’s opening with that of
the previous day’s opening, and try to assess the current day’s potential
on that basis.

Pay attention to another phenomenon which may mislead you.
Sometimes, a considerable portion of the volume derives from several
trades, or one single large trade. In other words, you might believe that
the intraday volume is large enough, but in actuality most of it derives
from one trade of hundreds of thousands of shares. To check if this status
is relevant, check the volume indicator and look for a single candle that
represents an extremely high volume.

What Volume Changes Mean

A wise rule states: “Buy the rumor, sell the news.”
Sometimes rumors can be exposed by identifying volume increases.

Volume changes, if interpreted correctly, can in certain circumstances
constitute an important index for buy and sell decisions. For example: when
a stock rises and breaks over resistance, the breakout should be typified
in a noticeable volume growth and thereby indicate increased interest of
buyers. A rule of thumb says that volume increase is considered significant
when the five-minute candle showing the breakout doubles relative to the
candles preceding the breakout. Later we will examine several rules that
we need for interpreting volume changes as the stock moves.

We need to differentiate between volume increases prior to daily
breakout (in one-day candles over several days) and volume increases
preceding intraday breakout (in five-minute candles during the trading
session).

How to Interpret Volume Increase Prior to Daily
Breakout

When the volume of activity for a stock increases before the daily breakout,
we should suspect something significant happening to the stock. Daily