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Low Volume Stock Trading
Summer is typically a quiet time in the stock market. The old saying is to sell in May and go away as less money flowing into the market over the summer months decreases trading volume and tends to cause a slow decline in prices. And low volume stock trading can be tricky as technical analysis of stocks is more accurate at high volume. Additionally, liquidity may suffer in lightly traded stocks adding risk to low volume stock trading. Nevertheless, the US stock market has been going up since the start of May as manufacturing numbers from the USA and China as well a promising US jobs report imply a continuing global economic recovery. The SPDR S&P 500 started May at $188 a share and ended at $192 a share. Now as July starts it is trading at $198 a share.
Putting on Your Investor Hat
When low volume stock trading makes short term technical trading less accurate a good idea is to think like a short term investor, consider the fundamentals and trade accordingly. This is swing trading and you will typically hold a trade for a few days to a couple of weeks. In this case low volume stock trading is not so risky as you are not looking to profit based upon second to second statistical analysis but rather your own analysis of the economy, global events and Federal Reserve policy decisions.
Low Volume Stock Rallies
Standard thinking has it that a rally is not a bull market until it occurs at high volume. But, if you bought stock ABC at $7 a share and it is not trading at $30 a share what do you care about volume? The concern of the experts is that if a rally is not supported by volume it will likely cool off and back up taking your gains with it. But, we are not talking about long term buy and hold investing here.
3. The old saying is to sell in May and go
away as less money flowing into the
market over the summer months
decreases trading volume and tends to
cause a slow decline in prices.
4. Before We Continue…
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5. And low volume stock trading can be
tricky as technical analysis of stocks is
more accurate at high volume.
7. Nevertheless, the US stock market has
been going up since the start of May as
manufacturing numbers from the USA
and China as well a promising US jobs
report imply a continuing global
economic recovery.
8. The SPDR S&P 500 started May at
$188 a share and ended at $192 a
share. Now as July starts it is trading at
$198 a share.
10. When low volume stock trading makes
short term technical trading less
accurate a good idea is to think like a
short term investor, consider the
fundamentals and trade accordingly.
11. This is swing trading and you will
typically hold a trade for a few days to a
couple of weeks.
12. In this case low volume stock trading is
not so risky as you are not looking to
profit based upon second to second
statistical analysis but rather your own
analysis of the economy, global events
and Federal Reserve policy decisions.
14. Standard thinking has it that a rally is
not a bull market until it occurs at high
volume.
15. But, if you bought stock ABC at $7 a
share and it is not trading at $30 a
share what do you care about volume?
16. The concern of the experts is that if a
rally is not supported by volume it will
likely cool off and back up taking your
gains with it.
17. But, we are not talking about long term
buy and hold investing here.
18. In swing trading you can take a little off
the table each time that the stock price
rises, remembering the old adage that
you do not have a profit until you take a
profit.
19. And, remember the market crash at the
start of the second worst recession in
three quarters of a century.
20. There are people who lost not only their
life savings but wealth that it took their
family generations to accumulate. Do
not expect to see these folks jump back
into the stock market at the first sign of
an up tic.
21. The problem is, of course, that those
who first see a rally and jump in early
are the ones who gain the lion’s share
of the profits.
22. All too many of the folks who lost
everything in the market crash rode
their assets down to the bottom and
then sold in despair just when they
should have been buying.
23. They had no sense that in trading a
down market you can reap huge profits
from getting out before the bottom falls
out, anticipating the bottom and
jumping back to share in the profits of
resurgence.
26. Not all of them are useful in all markets.
In low volume stock trading it may be
well to think more like a short term
investor than a minute by minute trader.
27. It may also be well to avoid excessive
greed. A nice profit is a nice profit. Take
it and be happy.
28. Remember that sometimes the experts
are right and a low volume stock rally
will reverse and take your profits with it.
29. On the other hand when such a rally
deflates is just the moment to adapt
your trading strategy to a more volatile
market.
