In order to better understand what constitutes a below/above average day, what do you consider to be average volumes for the NASDAQ and S & P500/NYSE? (February 28, 2004)
We look at volume based on the last 50 days of trading because we have found that this provides an accurate picture of what institutions are doing with a stock. To determine this average, you can go to a site like BigCharts.com, key in to the Nasdaq chart and set it to either daily or weekly volume and then run an average. Based on the current 50 day average for volume, average daily volume for the Nasdaq is roughly 2 billion, NYSE/S&P500 is roughly 1.5 billion. For daily volumes, go to http://quote.yahoo.com/m0?u.
Above average volume is anything that's over the 50 day moving average and is generally reflective of the movement of big money (institutions) into or out of an issue or in the case of the big averages, in and out of the market. This, of course accumulation or distribution is determined by the combination of price with the volume, whether it moves up or down with the higher volume levels.
It also can show us how strong a move is on a breakout from a pattern. Usually our target for volume on breakouts from most patterns like cup with handles, ascending triangles, double bottoms, etc. is 1.5 times the average daily volume, which is heavy. When we see that coupled with a sharp rise in price out of a solid pattern that shows accumulation, the chances are that it's a breakout that is going to launch the stock into a good run. Anything less than that 1.5 times average will make us less confident of that and requires closer watching to see if volume is actually 'on track' to meet our target for a breakout. We don't always look for that level of trade; rebounds, etc. after the initial breakout can give us solid entry points on maybe just average trade as the stock has already established the institutional interest with a high volume breakout.
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