8/10/2009

What is Dollar Volume and why it is important?



  • Dollar volume= price*volume
  • So if a stock price today is 10 and it traded 100000 shares then it will have dollar volume of 1 million usd.
  • Dollar volume tells you about liquidity of a stock.
  • It is better way to determine liquidity than volume or average volume.
  • Lets say there is a stock which trades average volume of 1 million shares per day. But it is priced say 50 cents then the dollar volume on the stock is 500k only.
  • Now why is this important. Let us say you are trading a 300000 usd account and you want to put 100000 in one position.
  • 100000 is 10% of 1 million usd volume turnover stock. So you will have great difficulty building large position and getting out.
  • Supposing you want to build 100000 usd position in 5 million USD dollar volume stock . it is 2% of daily dollar volume. Which is not a problem, but still not easy task.
  • So that is why when one has to build a big position then you need a higher dollar volume stock.
  • EP with less than 5 million dollar volume are difficult to build big positions in to. Because after volume surge on EP day they have 5 million volume. So on normal day they will have lower dollar volume
  • So when I want to risk big on a EP I look at usd 25 million plus dollar volume and if it is 100% of account then I prefer 100 million plus dollar volume.
  • Another use of dollar volume is to look at top 25 stocks by dollar volume in 4% breakout and 4% breakdown scan. That tells you whether money is flowing in to market or going out.
  • At the beginning of a major uptrend you will see big stock breaking out. While at the beginning of big down move you will see big stock breaking down
  • When shorting one should ideally short only 25 million plus stock or better 100 million plus dollar volume stock. That helps prevent short squeeze.
  • In Telechart Dollar volume is system criteria under Volume (Dollars) 1 day


  • Why you should monitor top 25 breakouts by dollar volume

    Top 25 stock by Dollar Volume up 4% plus on high volumelvs cbs nvda cme pnc csx bk dis mgm hans vno bbt low pxp mar jcp nsc hot nwsa eqr bby afl urbn adsk slg
    Top 25 stocks by Dollar Volume down 4% plus on high volume vrsn eog leap
    Only 3 stocks had 100 million plus dollar volume.

    • This tells you where big money is flowing.
    • If you do it daily, you will quickly notice overall market direction change.
    • At the beginning of a move large stocks start breaking out.
    • At the end of a move, you will see larger stocks breaking down.
    • Large stock=100 million plus dollar volume



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