Investing In Small-Cap Stocks - Why You Should Always Look At The Current Volume
James Woolley
August 31, 2009
Many traders and investors enjoy trading small-cap stocks because there are some big profits to be made if you invest in the right companies. However as many experienced traders will know, it's not as easy as it seems. This is why you need to invest in the right companies at the right time, and one way you can do this is to look out for high volume stocks.
With regards to trading, volume basically refers to the amount of shares that are exchanged during a particular trading day. It's obviously not that useful when looking at the bigger stock market listed companies because they usually see high levels of volume anyway, but when applied to small-cap stocks that normally have very low volumes, it can be absolutely invaluable.
The key to success is to look for small-cap stocks that are seeing abnormal amounts of volume. For example if the normal volume for a stock is on average around 5000 shares but the share price suddenly rises after 500,000 shares change hands, then this should tell you that the price is about to move even higher.
This upsurge in volume could be due to a number of reasons. It could be a director buying shares in their own company, financial institutions stake building, or simply just speculation that there may be a bidder out there who is about to put in an offer for the company. Whatever the reason you can often make some excellent returns by buying shares or opening a long position soon after you notice this dramatic increase in volume.
This is particularly true if the company in question has been unloved for several weeks or months. If the share price hardly ever moves and the volume per day is usually minimal, then it can be an excellent opportunity to open a new position when there is a sudden flurry of buying activity.
Of course you should always thoroughly research a particular company before you put your hard-earned money on the line, but if the fundamentals are good and the company apparently has a bright future, then it's not a bad idea to invest in them when interest suddenly picks up.
So the point I want to get across in this article is that with regard to small-cap stocks, you really should incorporate volume into your trading plan. Even if you are investing for the long-term it's still best to invest in shares when there is renewed buying activity because otherwise they can drift sideways (or downwards) for many months. If you are just a short-term trader, you can make some excellent profits by jumping on small-cap stocks that are currently proving very popular with investors.
Click here to read a review of Zecco and to read a full Tradeking review.
With regards to trading, volume basically refers to the amount of shares that are exchanged during a particular trading day. It's obviously not that useful when looking at the bigger stock market listed companies because they usually see high levels of volume anyway, but when applied to small-cap stocks that normally have very low volumes, it can be absolutely invaluable.
The key to success is to look for small-cap stocks that are seeing abnormal amounts of volume. For example if the normal volume for a stock is on average around 5000 shares but the share price suddenly rises after 500,000 shares change hands, then this should tell you that the price is about to move even higher.
This upsurge in volume could be due to a number of reasons. It could be a director buying shares in their own company, financial institutions stake building, or simply just speculation that there may be a bidder out there who is about to put in an offer for the company. Whatever the reason you can often make some excellent returns by buying shares or opening a long position soon after you notice this dramatic increase in volume.
This is particularly true if the company in question has been unloved for several weeks or months. If the share price hardly ever moves and the volume per day is usually minimal, then it can be an excellent opportunity to open a new position when there is a sudden flurry of buying activity.
Of course you should always thoroughly research a particular company before you put your hard-earned money on the line, but if the fundamentals are good and the company apparently has a bright future, then it's not a bad idea to invest in them when interest suddenly picks up.
So the point I want to get across in this article is that with regard to small-cap stocks, you really should incorporate volume into your trading plan. Even if you are investing for the long-term it's still best to invest in shares when there is renewed buying activity because otherwise they can drift sideways (or downwards) for many months. If you are just a short-term trader, you can make some excellent profits by jumping on small-cap stocks that are currently proving very popular with investors.
Click here to read a review of Zecco and to read a full Tradeking review.
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