I notice there are great discrepancies between the average volume and target volume from stock to stock. Does this target volume vary day to day depending on market conditions and proximity to the buy point? (June 8, 2004)
The target volume for any play on the reports is typically going to be a lot higher than the average daily volume, because it's that huge demand in buying that is what will push the price past resistance, giving it that explosive move that starts the next run. We want to see lots of buyers piling in when a stock breaks out of a pattern, since that will help insure the move is successful. Certain plays will require certain volumes. On breakouts from bases like cup with handles, double bottoms, and flat bases we look for at least one and a half times the average volume. For breakout tests where a stock has already shown big volume on the breakout, we just want to see volume surging when the stock resumes the move (preferably an above average volume surge). Same goes for a test of the 18 day EMA or the 50 day EMA; we want to see good volume on the rebound, but don't have to see huge volume if the stock has already shown that strong trade when it made the move that started the run. If the market is in a lower volume rally we may lower our sights some, but as we have seen, even with lower volume overall, strong stocks make strong volume moves. That is why we typically don't equivocate on volume when we are looking at entering a position.
The target volume will vary with respect to changes in the average daily volume at which the stock is traded. Since the average is determined over a certain length of time (we prefer a 50 day moving average to give an accurate gauge of the strength of moves) the average daily volume will remain fairly steady over the chosen period of time, especially when viewed within the time frame of most of the stock plays.
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