There’s one ingredient that can add conviction to trade ideas and help you spot the best potential stocks to trade…
I explained this to SteadyTrade Team members yesterday morning when I drew out a plan that was good for a 48% rager from my proposed entry.
I’ll give you the same explanation here today.
Use this tip to plan your next trade, and maybe you’ll crush it…
The Key Trading Ingredient
Yesterday, Ambrx Biopharma Inc. (NYSE: AMAM) was trending sideways near the previous day’s high in premarket…
And that’s when a SteadyTrade Team member asked me about it as a potential day-three surge. (It’s actually day five of the move, but the pattern is the same.)
I liked it as a day three surge pattern. But I didn’t think traders had to wait for it to break the day one high … I actually liked it if it could break over the $5 whole dollar level.
But in premarket it lacked that one ingredient needed to make a powerful move — volume.
That’s why I said, “I like it over $5 even though it needs volume. Because if it can break over $5, I think the volume will come in.”
And look what happened as AMAM crossed $5…
AMAM chart: 1-day, 2-minute candle — courtesy of StocksToTrade.com
And that break above a key whole dollar level eventually led to the day three surge pattern playing out.
AMAM chart: 3-day, 2-minute candle — courtesy of StocksToTrade.com
Volume is the key ingredient to add conviction to your trade ideas and to help you spot a key level for an entry.
If volume comes in it means other traders are watching that area and acting on the move.
When you see a stock breaking over what you think is a key level, but it has no volume, chances are nobody cares about the stock or the move.
I’ve found the best odds for trades are in multi-day runners (especially in this market), and in stocks that trade above their average daily volume.
You can see on the basics box that AMAM’s average daily volume over the last 60 days is 5.9 million shares.
Yesterday it traded 30 million shares by 2:45 p.m.
So when you’re looking for your best potential setup today, look for stocks with high volume.
And watch for volume to come in when you think the stock has made a critical move over a key level.
Using these tips might just prevent you from trading a stock or a move that’s insignificant. That just wastes capital and a day trade.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade