{"id":1850,"date":"2010-01-12T16:12:46","date_gmt":"2010-01-12T10:42:46","guid":{"rendered":"http:\/\/www.niftylivecharts.com\/blog\/?p=1850"},"modified":"2010-01-12T16:12:46","modified_gmt":"2010-01-12T10:42:46","slug":"understanding-stock-volume-and-liquidity","status":"publish","type":"post","link":"https:\/\/www.niftylivecharts.com\/blog\/understanding-stock-volume-and-liquidity\/","title":{"rendered":"Understanding Stock Volume And Liquidity"},"content":{"rendered":"<div id=\"_mcePaste\"><\/div>\n<div id=\"_mcePaste\">Understanding that volume and liquidity \u00a0in a better way will boost trading profits puts you one step closer to financial freedom. \u00a0The active, professional trader should know how to act in any market, liquid or illiquid condition<\/div>\n<div><\/div>\n<div>1. \u00a0High Volume Means High LiquidityStocks with a high volume are very liquid, not to mention they have lower spreads between the bid and ask prices. \u00a0Technical analysis works best on liquid stocks because trends are more fluid and give more data on which to base a decision. \u00a0High volume stocks are preferred.<\/div>\n<div><\/div>\n<div>2. \u00a0Late Day Breakouts and VolumeLate day breakouts occur mostly in periods of low volume. \u00a0In after hours trading when most traders are back at home, the market slows and each trade affects the price more and more. \u00a0While 1000 shares is a drop in the bucket during live trading sessions, it is a garden hose after hours. \u00a0Day traders love to play the late day breakouts that happen after hours, even in an illiquid market.<\/div>\n<div><\/div>\n<div>3. \u00a0Average VolumeAverage volume is a great way to judge the day\u2019s trading activity. \u00a0Around news releases and important events, volume will spike higher than average, giving traders a distinct advantage with entry and exit points. \u00a0Day traders that prefer trading opening gaps on news releases look at average volume versus current volume to get an idea how important the news is.<\/div>\n<div><\/div>\n<div>4. \u00a0Support and ResistanceSupport and resistance lines aren\u2019t worth anything in a low volume stock. \u00a0It is easier for a price to break out when volume is low. \u00a0For this reason, technical analysis (including support and resistance) should only be used on high volume stocks. \u00a0If a small trade can push a share price 2-3%, it should be advised that the stock will move wildly. \u00a0This allows for big returns and big losses, but it\u2019s always better to err on the side of safety<\/div>\n<div><\/div>\n<div>.5. \u00a0Momentum TradingIlliquid stocks fly when breakouts occur. \u00a0Breakouts can push volume 10-20 times the average daily volume, especially for low volume stocks. \u00a0Momentum strategies work best in low volume because each tick is worth more than in a high volume stock. \u00a0A few high priced trades will push the ask price higher and bids will rise to match. \u00a0Day traders like to follow the momentum on illiquid stocks, as it usually gives the experienced trader huge returns.<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Understanding that volume and liquidity \u00a0in a better way will boost trading profits puts you one step closer to financial freedom. \u00a0The active, professional trader should know how to act in any market, liquid or illiquid condition 1. \u00a0High Volume Means High LiquidityStocks with a high volume are very liquid, not to mention they have [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[2901,5258,918,523,917,5256,2536,5257],"class_list":{"0":"post-1850","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-general","7":"tag-stock","8":"tag-stock-liquidity","9":"tag-stock-market","10":"tag-stock-trading","11":"tag-stocks","12":"tag-tmeshare","13":"tag-trading","14":"tag-trading-profitsstock-volume","15":"entry"},"_links":{"self":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/1850","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/comments?post=1850"}],"version-history":[{"count":0,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/1850\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/media?parent=1850"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/categories?post=1850"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/tags?post=1850"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}