How do I know if the big guys are buying or selling? Well, this is a partial answer to that. And it’s also an answer to the question of how much volume matters. First of all, is volume bullish or bearish? And what should I be looking for in volume, looking at a daily chart, do you want to look for unusual volume?
Now unusual volume means that it’s trading a lot more than what’s normal, not just a little bit more, but a lot more. without having to worry about the nuances of volume, you want to focus on the volume patterns that are just blatantly huge. Now, if you take that one step further, and so what I mean by blatantly huge, is, if you look at the chart, look at your biggest volume bars.
Okay, those big volume bars are created by big institutions, they’re created by players who are taking a position, probably for a much longer-term. And they may not even have their entire position built yet, which means big volume areas tend to attract more volume and tend to become really important areas of support and resistance. Now, my volume charts here happened to be colored green, if the market goes up on that volume, and red if the market goes down on that volume. That’s not as important to me as what the market does after the big volume.
. So there’s, there’s a lot more to it. But this is where you should start. If you take a big volume day and just draw some lines at the high and the low. What you’ll find is that the direction the market takes after that big volume area, is really how you should be looking at that volume day, was it an accumulation day? Or was it a distribution day where the buyers win or did the sellers win? And so in the case of I just look at Amazon, I can see that this big volume, day right here corresponded with the low but you consolidate it for a couple of days after it. And it was not until you took out that volume bar that you knew which way that that volume was going to go. also point out that when you came back down to that level, you held for quite a bit. And in fact, he couldn’t get much below it once you got below it. And once you got back above it, the stock was strong. next big volume bar. Right here. And again, once we moved above it, you had a bullish bias. And if I draw the line at the bottom, where does the market ultimately come back and hold? Let’s look at the next big volume bar. Incredibly bullish-looking breakout. But the truth of the matter is that it consolidated after that. And once it took out that volume bar low, it was down granted the markets, bias has been pretty strongly down during this time as well. But the big volume not represents it. Remember, there’s a lot of people who took a vested interest in that stock at that price, that price is going to remain important. And the only participants that could create volume bars this big are the institutions. So by looking at volume this way, you’re finding good support.
You’re following what the institutions are thinking and it’s not that hard to do. Let’s just take a look at another stock. Hopefully, you can see the patterns that I’m pointing out. Now you can use this in your day trading and your swing trade.
This bar is this one right here. I’m not not saying that just because it’s got big volume, it’s going to go up. That happened to be the case in all in so far. But let’s take this one. Want to Be careful, it gets below it, right? Here’s another big one. Try to get above it a little bit. But once you couldn’t, it sold off, notice that it spent a couple of days trying to hold this level before the market just brought it down. Okay, now we’ve got big volume bars in here. Notice how when the market rallied back up, it stops at the top of the volume bar.
I know it seems simplistic, but it’s incredibly powerful. And the reason is powerful is because you’re tracking what the institutional players are doing. Now, fortunately, it’s just as simple to find these days, with probably several different tools, but one of the best is our hot scans product. And the reason it’s one of the best is that if I just click on big volume, I’ve got the scan that would have found any one of those big volume bars. And the reason I’m saying that is because when we look at volume if you look at the volume chart to the volume bars, we’re looking at the whole day versus average. Remember what I said the important thing is to find the volume that is greater than what is normal, not just a lot of volume, you know, the fact that Cisco or IBM or Microsoft or even Apple trades, 5 million or 10 million shares a day is not what you’re concerned with, you’re concerned with a situation where the stock has traded significantly more than average.
So if a stock’s average volume is is a million shares a day, and today it trades 10 million, that’s significantly more important than a stock that has normally traded seven or 8 million, and today it trades 10 million, both are trading better than average. But the first one is trading 10 times more than average. So our gauge here enables you to see the percent over the average that the stock is trading, but it goes one step further, I’m looking at this particular chart at 1030. In real-time, this calculation is telling me that HP q adjusted for the time of day is trading 1000 times greater than average volume. So if it stays at the same pace that it’s on at the end of the day, it will trade 1000 times greater than the average volume. So that enables me to see during the day, which stocks are potentially setting up to have this huge volume bar. Now that’s helpful for the day trader during the day to find out where the volume is, during the day, it’s helpful for even the end of day analysis for being able to find the stocks that closed with that type of volume, even that maintained it during the day. So just as a quick review, you want to find stocks that have truly extraordinary volume. And you want to find those big volume bars and follow the direction that it goes next. Don’t assume that just because on the particular day that you got the volume, the market was up that it’s going to continue to go up or down. It’s going to continue to go down. Okay, a common misperception of traders and a huge disservice to the analysis of the volume. So hope that helps. Well, that concludes this lesson.