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Section IV: Volume and Tools of the Trade
Many of our readers have asked us how to gauge volume at the time of break-out.
The tool we use is called Volume Percent Change: Volume Percent measures the volume that a stock has traded at any given time compared to the 90 day (or 60 d, 30 d depending on from where you get your data feed) average. Therefore at the end of an "average" day most stocks end near 100% (and in the middle of the day at 50%, etc).
For example, stock HCPG hit our alert this morning and quickly confirmed. When HCPG broke out at 10:30AM she had only been trading for 1 hour, therefore 100% divided into 6.5 hrs = 15, so she should have been printing around 15% of her average total volume. However, she had already traded 30% of her entire volume in one hour-- that is how we knew that it was going to be a very heavy-volume break-out. She ended the day with a successful breakout and 130% of her 90d average volume.
However, you also have to take into account that the first hour and last hour have more volume than the rest of the day, so it's not a completely clean split. Therefore, what we do, as a rule of thumb, is to compare our stock's volume to the QQQQ and other stocks on our list at any given time. So, for example, at 11AM if the QQQQ is at 27% and our stock is at 8% and triggering -- we know we should pass. This doesn't always work with the QQQQ because of economic news, or Options Expiration, which result in more volume than usual, but it's a good rule of thumb.
Alternatively, you can easily figure this out yourself by having a calculator beside you. Just divide the current amount of shares by the average amount of shares and you get the % it has traded for the day. For example, it's 11:30 AM and your stock HCPG has traded 1 million shares already in the first two hours of trading and it's average volume is 1.3 million shares. Divide 1 000 000 / 1 300 000 = 77% After 2 hours it has traded almost 77% of its entire volume which is excellent. The reason we like having a volume indicator instead of doing it ourselves is because a) it's faster because it allows you to see the percentage at a glance and b) you can compare it instantly to many stocks.
The charting software for us is actually not that important since we use no indicators except for the 50dma and 200dma. The rest is just price and volume. We know the average volume, the previous day's volume, the % volume a stock has traded at any given time. That's it. The intraday chart of a focus stock is in 3 minute time-frame on one monitor which in turn is linked to 4 different charts on other monitors: 2 day, 10 minute; 3 day 30 minute; 10 day 60 minute, and Daily 6 months including 50 and 200 DMA (and sometimes a 20DMA). Like almost all traders' charting software, each time we type in a different ticker all 5 linked charts instantly change over to the new ticker (and an automatic order gets filled according to default specifications if you are trading through QuoteTracker). If you trade like us, then you do not need expensive charting (we recommend QuoteTracker, which is $60 for the whole year). All you need are 2-4 nice large monitors, a reliable data feed, a direct access broker, and a basic quote/chart software.
Other charting software/brokers that we recommend is the combination of Interactive Brokers with QuoteTracker, Ensign, Amibroker, or Sierra Charts. We like Quote Tracker very much as charting software and it works well with feeds from IQ Feed or E-Signal. E-Signal itself is another good choice not only for its feed but also for charting. For brokers, as mentioned Interactive Brokers is quite popular among traders, as is CyberTrader and TradeStation. Another good combination is RML Trading with RealTick charting which is quite nice. All brokers mentioned are direct-access and the software for the most part is quite good. Choosing charting software is a bit of a subjective choice and we recommend that you download demos of some of the more reputable vendors and try them all out before subscribing. For more detailed information, see our article ToolTalk in the Best of our Blog section of the website.
We have written a short guide on how we configure and use QuoteTracker; if you are interested in receiving this, please contact us and ask for the QuoteTracker guide. |
