Friday, August 14, 2009

Day Trader Tools - Turning Up The Volume

Day Trader Tools - Turning Up The Volume

If I said "location location location" to you, what comes to mind?

I'm sure you probably said real estate and you'd be right of course. Buying the right location has proven to be the single most profitable lesson to learn in real estate.

When it comes to buying stocks it's not about location, but rather about "volume volume volume". Now if you are unfamiliar with that message as it applies to the stock market, then let me explain.

Someone gives you a great stock tip, or you saw some recent news and want to buy the stock, I say STOP! Unless there is volume, and I mean a lot of shares trading on a regular basis, the stock tip you heard or the news story you read about, can get you trapped in an illiquid stock. Trading a stock properly works best when a lot of shares are trading.

Now, let me give you three quick examples of what I mean. First, I personally use Stock Research Portal to find all my mining drilling news releases. I use it for many reasons, but mostly to get the drilling and discovery news in real time. Then I want to see how the market reacts to that news. And let's be very clear, buying into the news too early doesn't always work.

Let me show you just three examples, 2 stocks had news that affected the volume and one that had news but no effect at all on the volume.

GEM.V - Tuesday August 11, 2009 @ 10:19am - Pele Mountain Announces High-Grade Gold Discovery at Its Highland Project
"TORONTO, ONTARIO--(Marketwire - Aug. 11, 2009) - Pele Mountain Resources Inc. ("Pele" or the "Company") announced today that channel sampling at its Highland Project has returned high-grade gold and associated visible gold at the recently-discovered Lone Ranger occurrence."

GEM opened that day at .10 but the news didn't hit until 10:19am and there was no immediate reaction. Then the volume started. A stock that barely trades 100,000 shares in a day was now doing almost 2 million shares. It was the volume that moved that share price up 50% to .15 not the news on it's own. You see, a news release is just a collection of words on paper, and until the traders trade it, it stays a story unheard. In this case it was heard, the volume tells me that. In fact, it touched .17 the next day or 70% more than just the day before.

Simply by paying attention to the Stock Research Portal for drilling results could have made you some serious money. Now here's another example.

LYD.TO - Wednesday August 12, 2009 @ 8:30am - Lydian Drills 82 Meters at 2.5 g/t Gold and Extends 1M Ounce Resource at its Amulsar Discovery in Armenia

"TORONTO, ONTARIO--(Marketwire - Aug. 12, 2009) - Lydian International Ltd. ("Lydian" or "the Company"), a diversified mineral exploration and development company, today announced the first results from a 14000m step-out drilling program recently initiated at its Amulsar gold discovery in Armenia."

LYD opened at .55 up from the previous close of .41 and it opened that high because the news was released prior to the start of trading at 9:30am, so there was already demand. LYD barely trades 100,000 shares on a normal day, this day it traded almost 2 million shares and that volume drove the price up to .88 . Had you bought the pullback in mid morning, after confirming the volume was in play, you could have bought at .60 and still enjoyed the run to at least .80 for a profit of 33% . Oh darn just 33% in a single day!

As a day trader, I could have invested $10,000 on Tuesday and made 50% on my money. On Wednesday I could have reinvested my $15,000.00 and added another 33% to that, in essence doubling my initial $10,000 in just two trades over just two days.

In case you are getting crazy with excitement and I can easily see why, let me also show the other side of that.

ECR.V - Wednesday August 12, 2009 @ 8:54am - Cartier Reports High Grade Gold Results on Rambull: 27.72 g/t Au over 0.30 m

"VAL-D'OR, QUEBEC--(Marketwire - Aug. 12, 2009) - Cartier Resources Inc. ("Cartier") is pleased to announce new high grade gold results on its Rambull Project near Val-d'Or, Quebec. Channel sampling from recent trenching exposures at surface returned intersections ranging from 10.88 g/t Au over 1.00 meters and up to 27.72 g/t Au over 0.30 meters."

ECR opened at .175 actually half a cent below the previous close, and it only traded 9,000 shares all day. In fact that is far less than their daily average. So what gives here? Val D'Or, Quebec is very hot right now for mining, the company only has about 20 million shares outstanding .. this should have taken off .. should have, but didn't. In time, the news will find the right investors and with so few shares available, the share price could easily triple in a day. But nothing ever happens without volume!

THE LESSON: Never buy the news alone, wait for the volume to confirm the interest in the news. It's true, you may have to buy the stock at a higher price, but at least you won't jump in too soon, and get trapped with no easy exit.

Now I never intended to write a novel here, but I did really want to share my findings and use real life examples of how the strategy applies. The strategy is pretty simple, check the Stock Research Portal for drilling news regularly, then see if higher than usual volume comes in. If it does, wait for a pullback in the share price, never EVER chase it.

So there you have it, a pretty good idea of how the "volume volume volume" scenerio applies.

About The Author: Mike Perras is a former media executive and faculty of business professor. Today he is a freelance writer and also manages the Canadian Stock Alerts blog. It is updated weekdays in real time, and the primary focus is to find stocks with higher than usual trading volume. Mr. Perras doesn't advocate buying the stocks he mentions. Nothing in this article is either designed to meet readers personal financial situations, or intended or taken to be investment advice.

4 comments:

  1. Day trading for beginners is like lion taming, except more expensive. It's a risky and challenging pursuit: buying stocks and selling them again in the same day, making money off tiny fluctuations in the price of a stock over a twelve hour period. For many years the tools of day trading were not available to the average investor: real time stock results, analysis tools and access to instant trades.
    http://www.livetraders.net/

    ReplyDelete
  2. Day trading for beginners is like lion taming, except more expensive. It's a risky and challenging pursuit: buying stocks and selling them again in the same day, making money off tiny fluctuations in the price of a stock over a twelve hour period. For many years the tools of day trading were not available to the average investor: real time stock results, analysis tools and access to instant trades.
    http://www.livetraders.net/

    ReplyDelete
  3. "Day trading for beginners is like lion taming, except more expensive. It's a risky and challenging pursuit: buying stocks and selling them again in the same day, making money off tiny fluctuations in the price of a stock over a twelve hour period. For many years the tools of day trading were not available to the average investor: real time stock results, analysis tools and access to instant trades.
    http://www.livetraders.net/
    "

    ReplyDelete
  4. "Day trading for beginners is like lion taming, except more expensive. It's a risky and challenging pursuit: buying stocks and selling them again in the same day, making money off tiny fluctuations in the price of a stock over a twelve hour period. For many years the tools of day trading were not available to the average investor: real time stock results, analysis tools and access to instant trades.
    http://www.livetraders.net/
    "

    ReplyDelete