As day traders, we all know how important volume is to ending our day with a green P/L. Although not impossible to day trade without volume, trading a high volume day is both easier, greener and most of all, a lot more exciting. However, sometimes volume can drastically drop, and therefore, leave us holding the bag in the middle of a trade. If you’re a stock trader, your position may be dead money for quite a while. If you’re an options trader like myself, a volume drop in the middle of a trade, depending on your expiry, can completely ruin your trade, leaving you in a risk management position, trying your best to salvage what little premium you have left. So without further ado, let’s take a look at different strategies that you can implement into your day trading strategy in order to keep a close eye on volume, and take advantage of high volume opportunities when they present themselves.
Use a Volume Scanner
Two TradePro Academy favorites for volume scanners are Tradingview and Trade-Ideas. Although not live data, Tradingview has a great free scanner that’ll show you what the daily volume is on a particular stock. The Tradingview volume scanner is especially useful when assessing pre-market volume when building your watchlist, as it’ll also show you the change from the previous day’s close, pre-market gap %, and pre-market volume compared to average daily volume. If the pre-market volume is high, either by being almost as high as the daily average volume, or even exceeding it, the pre-market gap % is material, and most likely not pre-market manipulation.
Trade-Ideas, however, is in a league on its own. Trade-Ideas has many scanners available, such as a short squeeze scanner, volume scanner, ETF scanner, etc. Almost every scanner available on Trade-Ideas is volume-based and uses real-time data, which makes trading much easier when trying to find setups with volume breakouts.
Volume Indicators on TradingView
Along with a volume scanner, Tradingview also has multiple indicators you can add to your charts in order to gauge volume. Volume bars, VWAP, Accumulation/Distribution (A/D), Negative Volume Index (NVI), and Chaikin Money Flow (CMF) are just a few of the volume indicators available, but let’s do a breakdown of each to see which one fits your trading style:
Volume bars – Volume bars, and the volume number on the top left corner of your chart, give you a clear indication of buying and selling volume. If buying is increasing, the number will turn green and increase. If selling is increasing, the number will turn red and increase.
Volume RSI – The Volume RSI measures the speed and change of volume during the price-up-close (buying volume) and the price-down-close (selling volume).
VWAP – VWAP, short for the volume-weighted average price that gives the average price security has traded throughout the day.
Accumulation/Distribution (A/D) – A/D uses both price data and volume to ascertain whether a security is being accumulated or distributed. A/D uses volume specifically to gauge price momentum and is one of the most widely used volume indicators out there.
Negative Volume Index (NVI) – The NVI Indicator shows how low volume sessions affect the price movements of a stock. It is specifically used to track where institutional money is going.
Chaikin Money Flow (CMF) – The Chaikin Money Flow indicator measures the money flow volume over a chosen time period (mostly 20 to 21 periods). It works by measuring the volume of the closing price in a session’s range.
Time & Sales
Last but not least, Time & Sales is a great way to monitor buying and selling of shares and is especially useful for identifying large share orders that may move the underlying. Time & Sales works by identifying real-time share orders at either the bid or the ask. Similar to options order flow, the order at the bid is in red and indicates that the shares were sold, and an order at the ask is in green and indicates that the shares were bought. Monitoring Time & Sales orders, combined with chart analysis, can give you a clear indication of which way the stock is going to move. For example, if there is large order at the bid on a small market cap stock, this could potentially move a ticker, perhaps even triggering stop losses and causing a large volume induced sell-off. By identifying this order, you would know to take a short position on that name.
But wait, there’s more…
Although trading on high volume days is preferred, TradePro Academy teaches our community multiple styles of trading – momentum trading for high volume days (breakout trading) and pull back trading for low volume days. Join an experienced community of traders today, and learn how to adapt to daily volume conditions in today’s markets!
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO AcademyTM is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.