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Volume is important but BIG players rarely outperform the index

Discussion in 'Trading Strategies/Systems' started by StockyGuy, Jul 1, 2019.

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  1. StockyGuy

    StockyGuy Observe, Discuss, Apply

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    Any thoughts? If we were to follow big volume movements all the time we would underperform as most of the big super funds, institutional funds, and ETFs tend to not beat the market (or their specific benchmark) over time.

    I suppose it simply means volume is an important entry factor but you have to have the stock choice right in the first place - volume helps with timing but you won't beat the market by just following big volume.

    Does anyone use information on derivatives to determine a buy/sell/hold decision for the underlying stock? I appreciate it SHOULD all be reflected in the underlying stock price, but I think most here agree it doesn't happen so precisely.

    Anyway, I know nothing so feel free to disagree:D
     
  2. galumay

    galumay learner

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    I guess it depends on your style and strategy, as an investor I have no interest in volume at all, and in fact have never looked at it. Given that much of my investing universe is in very illiquid microcaps thats probably a necessity!

    I suspect a trader or speculator would say that its relative volume that interests them, so a spike or drop below the average volume might be something they looked for?
     
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  3. StockyGuy

    StockyGuy Observe, Discuss, Apply

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    It's always intriguing to me how people are consistently profitable by doing such different things to one another:) I guess you must be true to your own system. Tacking on something from a different system just won't necessarily improve your own system(s).
     
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  4. Value Collector

    Value Collector Have courage, and be kind.

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    I can honestly say, in my 20+ years of investing, I have not once ever watched volume.
     
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  5. tech/a

    tech/a No Ordinary Duck

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    For Long term investing it probably is irrelevant.
    However it would be nice to know there are more participating in
    your holding---this generally happens when a company grows.

    As a current example 5GN
    Look over the last year.
     
  6. StockyGuy

    StockyGuy Observe, Discuss, Apply

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    Thanks, tech/a. Re 5GN: so, I guess that volume spike in late February that coincided with a price rise was the indication that big buyers coming in hard and driving higher price higher on sustained basis. After that when the price peters out over a few candles it's typically on lower volume, but big volume spike then consistently pushes price up, indicating big money is keeping a "buy on dips" policy? As soon as the dips also start to be relatively big volume, though, the jig is up, potentially?
     
  7. Zaxon

    Zaxon The voice of reason

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    Volume is used in some momentum strategies. In essence, volume creates the "pressure" behind the momentum. It's not a metric I use personally. You could argue, unless you're a day trader, the effect that volume has will become baked into the price action. Therefore, by looking at the price, you have a summary of everything beneath it.

    Yup. Value investors vs trend followers is a classic one. In most cases, their actions are exactly opposite. And yet, both strategies have a statically proven edge.
     
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  8. Smurf1976

    Smurf1976

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    In my case the primary reason I do look at volume is to determine if the stock is liquid. So it's a check before investing, it's not the basis for investment.

    For the small and micro caps that can be a very different situation depending on whether the scale of investment is $1000, $100,000 or whatever. There's plenty of stocks which provide good returns but in practice are an option only for ordinary individuals with normal amounts of money to invest.

    Anyone with $ millions to invest couldn't seriously consider those stocks as they'd never get their order filled, at least not at a sensible price. That aspect effectively locks those with larger amounts out of those opportunities.
     
  9. Smurf1976

    Smurf1976

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    A related issue is market depth.

    Of itself it doesn't tell you what to buy but experience has taught me to pay attention to any major imbalance.

    If there's 15 buyers for 10,000 shares in XYZ and there's 250 sellers with 200,000 shares then that's a red flag that something's going on. Either sell or if you're keen to hold it's time to be very thoroughly checking your reasoning.

    If it was 10,000 on the buy side and 12,000 on the sell side then I'd ignore that as just being noise but not if it's a 1:20 ratio or something like that and there's lots of orders as well as volume. Something's up most likely.:2twocents
     
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  10. galumay

    galumay learner

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    True, but it also creates opportunity for those with less than millions to invest!

    I look forward to the day when I can no longer effectively invest in illiquid microcaps.....but in the meantime!
     
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  11. galumay

    galumay learner

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    Inversely, you cant beat the market doing what the market is doing, as a contrarian I am probably often one of the buyers in that situation. (not that I look at market depth anymore than volume.) My focus is purely on whether I have a high conviction that its a good business for sale at a discount to value!

    Like someone said earlier, there are many ways to approach investing and trading, I have long suspected that having confidence in a strategy and following it closely is more important than which one you use.
     
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