Stock Market Volume: Any Edge? Plus 3 PowerRatings Stocks
Price and volume are the two cornerstones of technical stock analysis. Volume is defined as the total number of shares traded in a specific time frame. The greater the volume, the more the liquidity.
Generally, the higher the liquidity the lower the volatility, with volatility being the size of price moves. Vice versa also rings true with the lower the volume the greater potential volatility.
In the most basic form, traders like to see volume slowly increasing in the direction of a trend. A volume spike can indicate the end of a trend and declining volume can reflect a soon to end move. These are the commonly believed market maxims regarding volume.
The question is, does knowing and tracking volume provide any edge to the investor? We decided to test the basic assumptions regarding volume to determine if an actual statistical edge exists in its use. What was discovered may surprise many investors.
When testing large volume days alone, the results were inconclusive. However, a short term edge was revealed when a large up move was combined with higher than normal volume.
Short term stock trading is one tactic that will allow you the ability to profit in the short term without the long term risk of buy and hold. The trick is the ability to locate those companies poised for short term moves prior to the move taking place.
As you know, after you see the move on the chart, it’s often too late to jump onboard. We have developed a simple, easy to use stock picking system called, PowerRatings to help you find these stocks ready to make a fast move.
PowerRatings are built upon the study of 8.5 million daily trades from 1995 to 2006. It is a ranking system of 1 through 10 with 1 representing the worse performers and 10 being the best performers. The system gauges stocks probability of outperforming against the S&P 500 over a 5-day period. Statistics clearly show that 1 rated stocks perform 5 times worse than the S&P 500, while 10 rated stocks outperformed 14.7 times the S&P 500 during the next 5 trading days.
As you know, past performance is no promise of future performance. However, our PowerRatings have proven time and time again to locate those companies most likely to experience short term gains.
Here are 3 top ranked bullish PowerRatings stocks for your consideration:
^MEI^
^FIRE^
^STC^
Learn more strategies for trading stocks in the short term with a free trial to our PowerRatings! The highest rated stocks have outperformed the average stock by a margin of more than 14.7 to 1 after five days! Click here to launch your free PowerRatings trial today!
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.