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volume grows for a reason. Sometimes, it indicates news that has yet to be
publicized formally but has already leaked to “those in the know.” It could
also indicate a large institutional buyer who has accumulated shares. As is
customary in funds, once 90% of their target is reached, the institutional
buyers release the brakes and want to let you know, by making large
purchases, that they are interested in supporting the stock. The trader
is hoping that you, and many others like you, are noticing that volume
increase, and will join in and help drive the stock price up.
Growth in daily volume can be simply identified using free Internet
screening software such as Yahoo Screener or Stock Fetcher. For identifying
intraday volume change, you will need to buy a more advanced program
such as Metastock. Most new traders should not feel the need to buy these
software packages and do all of the work themselves. Trading is enough
work. Use professionals and the tips that they are willing to share to find
stocks until you become successful enough to try to find stock patterns for
entry yourself.
One of the differences between the professional and amateur trader is
the former’s ability to correctly identify the entry price. Volume growth
helps us locate the entry price. An amateur will analyze several indices
(usually an unnecessary action) and make the buy decision with a delay,
only after his or her confidence level is sufficiently strong. It is a known fact
that the amateur’s confidence rises in direct relation to the stock’s price
rise, so that in most instances, the amateur’s entry price will be lagging. A
pro trader knows how to ignore extraneous indices and reliably evaluate
the correct entry price, with the stock about to break out. Volume growth
right before breakout is, in many cases, the earliest sign of the impending
breakout. Amateurs join later, while professional traders are watching
the stock’s price rise. To a great extent, this is also the difference between
profit and loss.
Big breakout volume represents the point of change in the public’s
perception of the stock’s worth. During pre-breakout consolidation, very
few are interested in buying the stock. The more the volume grows, the
greater the number of newly-interested parties. The more buyers there
are who believe that the stock will continue its new trend, the greater the
chances of success.
A stock that breaks out with a small volume does not catch the “radar”
of traders, and its chances of succeeding in the new trend are much lower.
After the breakout, investors are more skeptical, seeking additional “proof”
supporting the move. Large volume is definitely one of the more important
