Some days it is easy to tell-you check the volume and it is higher than average or the previous day’s volume. Often, however, a stock is making the move you want it to make after the first hour and volume is somewhere below where you want it. How do you tell if you should enter the trade?
First, you have to know what volume you are looking for and be able to find intra-day volumes. Your broker is a good source. Real time services show you exact volumes. Quote.com also gives you intra-day volume and average volumes, though it is delayed at least twenty minutes.
After you can get intra-day volumes, how do you know if you are on target? As with most cases, there is no 100% foolproof method that is exact every time. As a general rule, stocks have a surge of volume in the first hour and in the last hour. If it is a calm day, volume will usually slow during the middle hours, especially at lunch. We frequently see the morning volume surge followed by a drop off. If a stock is going to move for the day, however, we usually see volume again swing up after that initial drop.
After that first volume surge, we can check and see where the volume stands with respect to our volume targets for the day. If we see the stock is 40% or better of the target volume, we feel very comfortable that it will make our target. If the stock is moving well and we have hit that volume, we will feel good about entering a trade. We may be wrong, but the odds are with us. Going into the last two hours, if we see the stock start to move, we again check volume. If the volume is within 20%-30% of the target range, we again are comfortable it will hit the target. With the stock moving as we want it to and volume looking good, we will again feel good about entering the trade.
As you can see, there are no hard and fast rules. If the stock is showing good momentum and the volume is supporting that move by showing equal life, we feel good about the trade.