Trending Volume Strategy

When a stock is moving higher in a stair-step approach, you will want to see volume increase on each successive high and decrease on each pullback. The underlying message is there is more positive volume as the stock is moving higher, thus confirming the health of the trend.

This sort of confirmation in the volume activity is usually a result of a stock in an impulsive phase of a trend.

Volume Increase

The volume increase in the direction of the primary trend is something you will generally see as stocks progress throughout the day.  You will see the strong move into the 10 am time frame, a consolidation period and then acceleration from noon until the close.

For this strategy, you will want to wait for the trade to develop in the morning and look to take a position after 11 am.  For those that follow the blog, you know that I do not trade in the afternoon; however, this doesn't mean you can't figure it out.

As the stock moves in your favor, you should continuously monitor the volume activity to see if the move is in jeopardy of reversing.  The speed of this setup is much slower versus the other strategies discussed in this article; however, the difficulty reveals itself in the increased number of false moves, which are commonplace in the afternoon.

Think I'm kidding about false breakouts, let me show you a couple.

Weak Trend 1

Weak Trend 2

These charts are just a sample of what happens far too often when it comes to afternoon trading.  So, how do you find the stocks that will trend all day?  After many years of trading, I can tell you I honestly don't know.

In Summary

1. Look for volume to push the stock in the direction of the primary trend
2. You need to be prepared to hold a stock for multiple hours to reap the real rewards
3. Once you figure out how to identify the stocks that will trend all day prior to 10 am, please shoot me an email
4. Instead of using volume to predict which stocks will trend, simply use volume as an indicator that keeps you in a winning position