25 Sep Does Volume Really Matter?
Does Volume Really Matter?
Sept. 25, 2023
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I’ve been fascinated with sports my entire life.
In my younger days, it would have been hard to find a biography about a coach that I hadn’t read.
But a few years ago, I was watching an American football game and something hit me.
And has bothered me ever since.
During the game, the fawning announcers made some comments about how one coach was in his office until 2 am every night, and impressively only slept three hours a day.
Their message? This coach was awesome because he worked 18 hours a day on football.
And then his team only scored three points.
On one hand, the hero-worshipping announcers were reciting the mantra that real coaches work a million hours a day–because that’s the only way to be successful.
On the other hand, after all that work–after neglecting his family, his personal fitness, and probably his hygiene–his team was pitiful.
Eighteen hours a day for three points?
He could’ve worked eighteen minutes a week and gotten the same results.
Something didn’t fit.
In trading, there’s a similar feeling about volume.
Listen to any interview with any great trader and he/she will tell you: it’s all about volume.
- You can’t take trades without volume.
- You need to study volume.
- Volume needs to contract.
- Volume need to explode.
There are hundreds of hours of videos out there talking in mind-numbing detail on how to “read the tape” properly. Do you know what reading the tape means?
It means deeply looking at volume at certain prices on a second-to-second basis.
In short, if we’re not looking at volume for six and a half hours a day, we’re not really trading.
Like football coaches who only work a few hours a day, we have no chance if we don’t study volume.
Many months ago, I started studying a long-term stock system that catches every big winner. Literally.
Look at every William O’Neil historical winner or every Mark Minervini big winner or any huge winner highlighted by Stan Weinstein.
Every single one can be captured on a long-term chart. It’s crazy.
But there’s a problem with that system: it doesn’t use volume.
So I decided to fix that problem. I went back and changed the code on my strategy to incorporate volume.
We’ll first look at Amazon.
Here’s AMZN on a Monthly chart going back to 2000 using the Incredible Method:
Those are good hypothetical numbers.
And here’s the Report if we only take entries if the volume is GREATER THAN the average volume over the past fifty months:
It’s still good. But not as good as the regular method with no volume.
What about SPY?
Here’s the Report using no volume since 2003:
Here’s the Report if we only enter on big volume:
With SPY, only entering using big volume was WAY worse than the regular method.
First, a high-growth stock did worse by incorporating volume and then an index did far worse when volume was the centerpiece.
Now, no one is saying that coaches shouldn’t work hard.
And these are only two trading examples.
But we might be able to say that eighteen-hour days are wasteful overkill and volume may not be the end-all, be-all everyone tells us it is.
What we need is more data.
So we’ll look at a few more examples in our upcoming Newsletters.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.