Reading a Stock’s Volume | Podcast Episode #329

0:07
Hey, I’m Ryan Mallory. And this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan Mallory with swing trading the stock market and today, this episode is from a guy who wrote me on Twitter.

0:38
You actually wrote me twice on Twitter and I never saw it. Why? Because I usually don’t check my Twitter messages. There’s a lot of ways to get in contact with me and I think sometimes as a result Things fall through the cracks in terms of some of the Lesser used methods like Twitter or Facebook Messenger has usually I see the Facebook Messenger but Twitter I usually never see.

0:55
So I was checking the Twitter messages because it said I had a few. And this guy here wrote me twice about similar questions but I’m going to incorporate both of these emails into the episode because I feel Like they complement each other really well. And for the purposes of keeping, this guy’s identity, a secret. I’m going to call it guy.

1:11
Hank. Good old Florida, red, nickname. Also a good country singer. Pink rights mr. Mallory I am a new Trader, I started during the fish in a barrel covid lows. That’s a new term. I’ve never heard that one before had no idea what I was doing. And as the market, rebounded decided I needed to actually learn what I was doing to be a successful Trader.

1:29
Long-term, I don’t follow any watch lists or get any notifications. I want to learn how to fish. IE that kind of goes back to that saying a give a man, a fish feed him for a day. Teach him how to fish feed him for a lifetime. So he wants to learn to fish. He goes on to say, I started a few months ago, listening to your podcast.

1:46
And I am excited with every new episode. There has been a really great help. I have two questions for you, if you don’t mind one, what is high volume? Is it 10 percent more than the 10 day moving average. 50% more than the 50-day. Moving average high is relative. So when you discuss breakouts on volume, what do you classify as high volume?

2:03
Number two, I know you like Is that you can do on your show, but do you answer more specific chart questions? If so I was looking at Etsy and it appears to me and still during these chart patterns, to be an inverse Head and Shoulders pattern on the three-month daily candles. However, the recent days appears to create a head and shoulders the other way as well.

2:21
There’s one pattern typically override another pattern or is this a sign that the stock hasn’t decided yet and we should watch it further if you don’t answer specific chart questions. I completely understand. Thank you for your time, sincerely Hank. Then he goes on to write me another letter. Or by letter, I mean message.

2:37
And I’ll skip through the pleasantries on this one. He said, essentially, I started during the covid pandemic, which we already know at the prodding of a friend made good money. On a lucky trade with pain. He got in at 13 hours of share. Got out of $84 and decided. Hey, why not do this more? I have a very small count, typically due to my risk can buy at most two to three shares at a time, a majority of my stocks are just one share.

2:57
So I have struggled to find the right time to take a profit. However, I have kept true to your doctrine of risk management and so far this year I am up 32% Current win-loss percentage is about 65%, taking, usually around four percent profit of my average losses around 2% man.

3:13
That’s great dude I wish I was right. 65 percent so far this year he was on the same buying only a share of the time as soon as I get nervous or question. I trade both winning and losing I sell and move on. I get nervous for a reason and that will cloud my judgment. So, I get out and I enter a new trade with a clear mind.

3:29
I have been trying to understand the stock market and learning. Since the pandemic this grind has led to me being in the red. The last two years. However, each year have gotten closer to break. Even and as I already said, this year has been the best start to my young journey. I feel like my trading method, which centers on the TTM squeeze 10-day, breakout strategy has been a positive one so far for me this year.

3:49
However, I am struggling with reading volume into the equation, okay. So we talked about that a little bit already. He also asks, I get a big candle on high volume, is that good in a good sign for a breakout? So do you look for a retest confirmation and if so that would make sense? But How do you read volume in a Range? I am sorry. If I’m getting my vocabulary. Run just a little. Please feel free to correct me. So an example to help with the question, would be on stock symbols ews, Zurn, LK Water Solutions on 421 is trading in a range and triggered on my market skin that they, there is a small green candle staying inside the range but very high volume is volume. Showing that there are buyers in that this is promising or does that show that there is a bunch of sellers above this area? Keeping the price down? Do the Wicks play? Her role in this is this typically bullish, bearish. And how do you determine price? And volume are. The cornerstones that any decision needs to be based on.

4:42
So what story has been told and what should I be looking for? And so on, what’s their, okay, we’re doing a little bit of rambling here but okay, so at the end there, he’s like, I’m trying to understand what story the chart is telling me if you’ve listened to some of my past podcast episodes, I always talk about, you know, the charts. They’re telling a story and it’s our job as technical analyst to figure out. That story. Is that basing? Is it getting ready to break out as a topping? Is it getting ready to sell off as it in the midst of a really strong trend? Is that midst of a big decline as Traders? That’s what we’re trying to figure out.

5:16
So with all that being said, for today’s podcast, I’m drinking some Buffalo Trace here. And for those who aren’t familiar Buffalo Trace, it’s a good everyday sipper. I like it from the weakened standpoint. A lot of people pay it way too much money for you should be only pan like 20 to 25 dollars for a glass of it. They’re selling it for more than $25. At some secondary liquor store would not get it. But yeah, for this podcast, drinking myself a little Buffalo Trace. Really good stuff for the price at least. Okay. So breaking down this somewhat of a long-winded email, but it’s a good one. He asks some important questions.

5:48
What is high volume? Is it more than 10% than the 10-day average? So, what do I use for swing trading? I’m usually a little bit more interested in the volume over the past month, what’s the average been for the past month? So for that, I use a 21 day moving, average, simple moving average, I overlay it on the volume.

6:04
If it’s above The 21 Day moving average. I consider that high volume if it’s below die. Consider it low volume. A lot of times, it’s just sitting right there on it. So the 21 Day moving average, the reason why I chose 21 is there’s typically about 21 or 22 days and it given trading month. So I took 21, that’s what I base it off of.

6:22
Now, obviously the higher you get above the 21 Day moving average, the stronger. The volume is the lower the more so, and also, I think it’s important to look at the trend in volume. If you’re seeing day after day, the volume getting less and less. It means that people are losing interest. It’s in the market, especially if it’s getting less and less below average.

6:39
And that’s one of the things that we’ve been dealing with, over the last 17 days, until today, where the NASDAQ was trading in a 17-day Range, sideways hardly doing anything, would gap down rally right back up to break, even got higher sell-off in self right back to break, even on the day for the most, like, give or take a few points.

6:56
Now, that didn’t happen every day, but most days it did, and it was very frustrating, but you could see where people were losing interest in the market because every day that volume was getting less and less and less. And then it was getting extraordinarily low. I mean, when we were trading below the volume on spy, for instance, that was below the volume reading from the half day before Christmas when the market closed at 1 p.m. Eastern.

7:18
And so when you start getting into these really low volume levels, that’s well below the 21 Day moving average. That’s usually a sign for me that there’s a good chance. Some of these breakouts are not going to be able to hold or breakdowns for that matter if the volume is low. But now today, I talked about the 17-day, ranged, the cues.

7:35
Broke below that range and did so on above average volume, most of the time for us to get a sustainable sell off, it needs to be on high volume at least as it pertains to the indices. If it’s on low volume, there’s a very good chance. It’s going to get bought up before the end of the day. It’s just one of those things that’s been going on for a few years now.

7:52
The market can go up on low volume. That’s been a standard at this markup. I would probably say for like years now. And so, during the summer months, like July and August, it’s not uncommon to have some really, really low volumes, as a lot of people are on vacation. And as a result you just get this Market that can’t sell off and just marches up two or three points a day, but almost every significant sell-off that you ever see will be done on Extreme or strong volume.

8:16
He asks, another question here that should I be looking for 50% more than the 50-day moving average or in the case that I laid out more than the 21 Day moving average I mean 50 percent more than the daily average that’s usually going to be a news-based event at particularly with like a stock. Maybe there was an upgrade maybe there were some positive FD, 8 news or maybe there was a earnings event.

8:35
That’s usually tied to a really, really strong volume, but it does help to see consistent days of high. Volume. That tells you that there’s a lot of humilation going on in that particular stock. Now, he talks about Etsy and he talks about there being two different patterns. Now, one of the things I try to do in this podcast, I don’t try to get into the weeds of a chart because you guys can’t see the chart in front of you.

8:54
So what I would say about this one, we don’t even have to pull up the chart on it. He’s talks about how he sees this a head and shoulders pattern that has been forming over the last three months. But in the grand scheme of things, there’s Much bigger Head & Shoulders pattern, so which one plays out which one is going to rule the roost?

9:09
Well, the short-term pattern is more likely going to be important in the short-term and the long-term patterns can be more important in the long term and that kind of sounds stupid. The way I say it in the sense that well that’s pretty freakin obvious but that’s really what it comes down to. A lot of Concepts and trading are very simple and we just have to apply it in a simple manner to our trading.

9:29
And so in this case longer term patterns they’re going to be much more impactful from a long range. Range. So if you see, like a huge inverse Head and Shoulders pattern, that’s formed over the last three years, and it starts to break out while I wouldn’t expect it to make this gigantic move overnight.

9:45
It’s like it took three years to form the pattern that’s probably going to start, you know, a pattern that might last for five or six years, but it’s going to be very gradual. They’ll probably be some significant pullbacks along the way but it’s a much more longer term Trend pattern, whereas that you have a inverse Head and Shoulders pattern or a basic pattern in the short term.

10:01
It may be only something that lasts a few months before there’s a Significant pullback or a reason to get out of the stock and which one’s stronger versus the other. The long-term ones are always going to be stronger because they’ve developed over time. It’s just like if you see something on an intraday chart like a head and shoulders pattern on an intraday chart, that’s not going to carry near the amount of weight that you’re going to have as one that was formed on a daily chart or even an hourly chart.

10:23
If you’re comparing it to something on a one-minute chart and also if you’re looking for something that will help you with your trading, check out swingtradingthestockmarket.com. This is going to be my Patron service, that’s tied to this podcast with it. You’re going to To get all my market research each and every day that’s going to include a weekly watch list daily watch list of bullish and bearish stocks that I’m watching each day plus you’re going to get updates on all the things stocks updates on all of your big take place and the market, indices, as well as some of the most intriguing, stocks, and ideas that I come across each day.

10:55
So check that out. swingtradingthestockmarket.com, you’re supporting the podcast in the process. Now, as for the second email, there’s a lot of stuff to dissect in that one as well. One of the things that stood out to me is that Hank Talked about the nervousness that he has in his trading and let’s say, well, you got to kind of decrease the amount of sugar that your trading, but he’s like most cases only trading with one share at a time.

11:14
So it’s kind of hard to do that unless you’re going into fractional trading, which I know brokerages like Fidelity. They have that, but you really want to be careful about getting too nervous and letting those emotions run your decision-making. Now, I’m also kind of cautious about trying to tell him what to do, because he’s doing pretty good in the risk-reward.

11:33
He’s also up 65%. And he’s feeling a little bit confident. So I don’t want to get in the way of that at all, but he also seems to know what makes him nervous. It sounds like there’s something in his past or something in his history that gives them a little bit of anxiety. So he tries to be aware of that. That’s actually really good.

11:48
That he’s cognizant of the fact that he gets nervous about being up on a trade and everything else. So that at least when he’s making a trade, he’s not oblivious to the fact that you know his nervousness might be playing a role in it so he’s starting to look instead for trade setups that will take into account. Personality style, the way that he responds to trades when he’s profitable or even losing.

12:05
You know, for me. One thing I would make sure that I’m doing is that I’m using a stop loss. I don’t know if he is or not, but I definitely don’t want my nerves to be the reason why I would be getting out of a trade. I talked about a lot, we’re if we’re nervous in our trades, there’s oftentimes an issue with position sizing and that we need to be trading with less shares or smaller amount of capital, but there’s also some people that they just have a very nervous person.

12:35
Ality in general. You some of you guys have probably met people like this. I have people in my life. They’re very, very nervous. When you talk to them, one person, I talked to a few times a year regarding some business matters. Every time I talk to him very nervous personality, he always looks like he’s worried about something bad’s about to happen all the time.

12:52
He just he has a nervous personality and when you have those kinds of personalities, it doesn’t mean that you can’t trade or that you can’t do well. He’s having his best year yet and that’s a good thing and it’s also a good thing that he’s aware of the Nest that he has, that’s inherently a part of who he is.

13:09
But there’s one part of the email and I would encourage anybody who’s feeling this way. Just ask yourself if you’re feeling nervous about a trade and you decide to get out based off of getting nervous or question the trade, ask yourself, why are you nervous about the trade? Ask yourself, why are you questioning the trade and usually you can get to the root cause if you’re just being honest with yourself like I said we were talking about position sizing if it’s me that’s getting nervous about.

13:32
I can tell you exactly what will make me nervous on every single trait. One with the stock has just way too much volatility to it or two if I’m trading with too much capital or a position size, that’s far too big for me. And so I’ve taken that into account and all my trading, I don’t trade penny stocks.

13:47
I don’t trade crazy leverage positions. I just trade stocks with low to medium volatility, but I’m not going to go after these things that are real crazy like GameStop or AMC or Bed Bath and Beyond or something that has huge amounts of headline risk of because I don’t like that.

14:02
And finally tackle, this question about stock Symbols ews Zurn, LK Water Solutions, don’t think I’ve ever traded this one before, but to refresh your mind, he’s talks about how on 421, it was trading in a range and triggered on my his markets. Can that day, there is a small green candle staying inside the range, but on very high volume.

14:22
So yeah, I would say, if it’s still in the trading range, I mean, looking at the chart, yeah, it was a pretty nice candle that you got. It was on extremely high volume. That could have been news-based. So let’s check, let’s check. If it was on the news based kind of a move if usually I mean, you can go on Twitter and X find a lot of market-based news, but usually I just go to thinkorswim and when I go to thinkorswim, there’s no news for that day.

14:42
So what that would usually tell me is that there’s some accumulation, there are some people that are starting to gain interest. Maybe you actually have some institutions that are trying to get involved in it at that point, that’s a good sign. It’s very, very strong. Why I’m there are some big buyers there and then you also had pretty solid volume on Monday as well or the 24th.

15:01
But what it looks like is that was kind of a Prelude to It’s earnings event today, or at least on the time of this recording. They had a earnings report that came out, that’s going to result in probably a lot of volume the following day, or in most cases. So, I would probably say that a lot of that volume increase that you were seen over the last couple of days was probably people trying to get in ahead of earnings.

15:22
Maybe there was even some insight information going on there. I hope not, but that does go on. I can assure you that. I mean happens all the time. So if you’re looking for the story and you’re looking at the charts, you can see that it had earnings in it. At least if you are looking at it a few days ago you could look at the future news events, you should always be keeping track of stocks that you’re looking to get into or the stocks that you’re already in about when they’re going to be reporting earnings.

15:44
If you’re not doing that, you’re just setting yourself up for a nasty surprise. And this case they had earnings today but the volume started pouring in back on Friday, but it didn’t break out of its base. And now it does have a pretty impressive basing pattern going on but it hasn’t really broken out above it.

16:08
Now sometimes you’ll play a breakout, let’s say if you’re trying to get into stock XYZ at $100 and it goes above it entered a It may not hold that hundred dollars where it breaks out at. Maybe a closes at 9950. Is that mean? The trade is over? No. But if you didn’t get into the trade most cases, what I’ll do is wait for it to see if it can break the highs of the previous day the following day or I’ll wait for the market to get closer to the clothes before I make a decision on buying it, at that point, I can usually have a good idea of whether or not it’s going to hold that breakout level into the clothes.

16:29
So, was he WS? There’s a story there. You gotta find the story and this case there was a nice basing pattern. It was Closer to breaking out but it was on higher volume. But because of earnings if it was me I’d be saying hey I can’t trade this one because I got earnings. I need to let the dust settle before I get back into it.

16:44
Usually I wait a couple of days after earnings before I would consider getting into the tray just in case I get hammered with some nasty downgrades or something else like that. But overall though think there were some good questions. I was asked here a lot of times when I’m doing podcasts that are to charge, it can be kind of difficult to explain it from my end, so I’m hoping on your end, it’s a little bit better.

17:02
Well, received them down the way, I feel like I gave it If you have any questions, make sure to send them to ryan@shareplanner.com. I want to hear your stories. I want to hear where you’re from. I want to hear what your struggles are. Send them to me. And I’m trying to put every one of these into their own podcast episode. I promise, I’m trying my best, so send it to me.

17:19
ryan@shareplanner.com. Check out swingtradingthestockmarket.com. I think you guys will like it, and make sure to leave me a five star review to can’t. Thank you guys. God bless. Thanks for listening to my podcast. Swing trading the stock market, I like to encourage you to join me in the SharePlanner trading block.

17:35
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17:54
And follow me on SharePlanners Twitter, Instagram, and Facebook, where I provide unique market and trading information. Every day. You have any questions, please feel free to email me at ryan@sharepanner.com all the best to you and I look forward to trading with you soon.