Happy Monday, everyone!
Today, I want to talk about trading volume…
It’s one of the top things to look for when you consider entering a trade.
Volume isn’t just a number… It helps you confirm trends and decide whether a stock deserves your attention.
And I can’t stress enough how much volume matters for day traders and penny stock traders.
We all know how penny stocks can be incredibly enticing with their low prices and high potential for returns, but they’re also extremely risky.
If you’re new to penny stock trading or think you might be interested in trading pennies, watch my intro video, which explains it all.
Penny stock traders need to understand and know how to leverage trading volume to successfully navigate those choppy waters.
Every morning at 8:30 AM, I go live in my Premarket Prep where I show my subscribers which stocks look promising and which ones don’t…and then I advise them how to proceed from there.
And when I do my analysis, I use several technical indicators, but volume always carries the most weight.
Table of Contents
So what is trading volume?
First things first, what exactly is trading volume? It’s pretty straightforward: trading volume is the number of shares bought and sold in a specific timeframe, like a single trading day.
Simple, right?
Why Volume Matters in Penny Stocks
It affects liquidity and ease of trading: Penny stocks often have lower liquidity than larger, more established stocks. When fewer shares are being traded, it can be difficult to enter or exit positions without significantly affecting the stock price.
It confirms price movements: Penny stock price movements can be erratic. A sudden spike in price can be misleading if it’s not supported by substantial volume.
When you see a price increase accompanied by high volume, it’s a better signal that the move is real and not just a result of a few trades pushing the price around.
It can help you detect manipulation: Penny stocks are more susceptible to market manipulation, like chat pump schemes. By monitoring volume, you can spot unusual spikes that may indicate scam behavior.
If a stock’s price is rising but the volume is relatively low, it’s a red flag that what you just saw might not be sustainable.
It indicates market sentiment and interest: When a penny stock sees a surge in volume, it often means that there’s significant interest and buzz around the stock. This can be due to news, earnings reports, or other catalysts, and if that’s the case, the trend could have momentum behind it.
See how volume worked on a big winner…
Just last week, a penny stock, Primech Holdings Ltd. (NASDAQ: PMEC), had a big gain.
There was no real news or other fundamentals to rely on…Only that as the price started to increase, for whatever reason, its rising volume indicated that the trend might continue.
PMEC 5-Day, 5-Minute Candle Chart; SteadyTrade
And it did!
By the way, our Oracle algorithmic tool spotted it too…
It gave us the green bullish signal to enter the trade at $0.64 per share. After hitting that price and peaking at $1.04 on the same day, PMEC had returned 62.5%*.
If you don’t know about Oracle, you should! Volume and other indicators are its bread and butter.
Oracle scans the entire market every morning for volume increases, trends and other patterns. Then it uses its algorithm to produce a list of 20 stocks it believes are going to deliver gains for that day, on the long and short side, along with an entry price.
I couldn’t trade without it and neither should you.
And see how it predicted a drop in price…
Like I said before, decreasing volume can also tell you that the gain you just saw is not sustainable.
Take a look at Redhill Biopharma Ltd. ADR (NASDAQ: RDHL) from last Thursday:
RDHL Two-Day, 5-Minute Candles Chart; SteadyTrade
So what have we learned from this?
Let’s say you’ve found a promising penny stock that’s been on the rise…and not only that, volume is rising with it.
This alignment of rising price and volume can give you confidence that the trend is supported by genuine market interest, making it a potentially solid play.
On the flip side, if you see a price spike but the volume remains low, you need to remain cautious.
The lack of volume indicates that the price movement might not have the necessary support to continue, increasing the risk of a sharp decline.
My final thoughts…
In the volatile world of penny stocks, trading volume is your friend.
It helps confirm price movements, ensures liquidity, and can even protect you from falling into manipulative traps. By incorporating volume analysis into your trading strategy, you can make more educated decisions and navigate the penny stock market with greater confidence.
Remember, a successful trading strategy is more than just finding opportunities…you need to be able to back up what you find with solid data, like volume.
Keep learning, stay disciplined, and let volume guide you to smarter penny stock trades.
And if you’re looking for another way to guide your trading, my mentor and fellow trader, Tim Sykes, has built a system that leverages AI technology to identify stocks that are poised for a spike.
The system’s framework is based on human psychology, specifically fear and greed. Stocks can follow the same patterns repeatedly because people behave predictably when they’re stressed.
Learn more about the AI bot that will make you a better trader.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade