When it comes to trading momentum stocks, I think there’s one important concept that many don’t think about.

Those who understand it are in a position to uncover stocks poised to run, in my opinion.

In fact, it’s one of the first things I look for when I scan and filter for momentum stocks to hunt down.

I know what you’re probably wondering, “Jason, what are you actually referring to?”

Liquidity

Of course, the first thing many traders think about when they hear the word liquidity is volume — more specifically, share volume.

However, I believe the more important indicator of liquidity is dollar volume ($ volume).

Why?

 

Don’t Ignore Dollar Volume If You Trade Momentum Stocks

 

You’ve probably heard of volume before. When traders refer to volume, they typically refer to the total number of shares traded for a specific period. 

Sure, it’s great to use sometimes… but I don’t think it necessarily gives traders a great idea of liquidity and tradeability.

For example, Indoor Harvest Corp (INQD) caught a pop on Thursday as pot stocks caught a bid off news that it can potentially treat and prevent coronavirus. Well, 337,837,555 shares traded yesterday.

It sounds like the stock was liquid, right?

At least, that’s what a beginner momentum trader would think…

But the stock closed at $0.0007… so that means it had under $300K in dollar volume that day.

I don’t know about you, but trading a stock with such low liquidity, in terms of $ volume, could be a disaster… 

Think about it like this, if someone wanted to sell $30K worth of INQD, the stock could pull back.

When you look at $ volume liquidity, it’s the share price multiplied by the daily share volume.

Basically, the higher the $ volume… the more liquid a stock is, in my opinion. Typically, the greater the $ volume, the tighter the bid-ask spread, but remember share volume also impacts the $ volume.

By looking at $ volume, it actually lets me filter for potential momentum trading opportunities. 

 

How I Use $ Volume In My Trading

 

For me personally, $ volume is one of the first things I look at, as mentioned before. Basically, when I’m looking for momentum stocks to trade, I filter for stocks with at least $200K in $ volume in the pre-market.

Thereafter, I sort by % change.

 

Source: Scanz Technologies

 

By conducting this scan in the pre-market, I’m able to game plan and find a handful of stocks I may want to trade.

Now, after the opening bell, I actually increase the $ volume filter.

Why?

Well, think about it like this… in the pre-market hours, the $ volume is light and stocks could be gapping up… but if the $ volume doesn’t increase after, I think the chances of them moving higher is slim.

So here’s what I do after the open…

 

Source: Scanz Technologies

 

I increase the $ volume to $2M… that way I can know if these momentum stocks have room to continue higher.

Once I’ve filtered down stocks that are moving… I look at the charts to try to identify my bread-and-butter setups.

For example, let’s say I spotted a stock that gapped and was moving fast… if I didn’t catch the initial move, I would look for pullbacks and identify areas of value.

Let me show you what I mean by that.

The other day NNDM actually caught a nice pop and showed up on my scanner. I missed the move, but with a news event… I figured it could continue higher, but I just needed to see one of my patterns before I made a move.

 

Source: thinkorswim

 

I actually noticed the Fibonacci retracement pattern, as well as a bull flag setup.

So I actually was able to buy shares in the consolidation area in the afternoon and looked for a gap up in the evening or the following morning.

In the post-market that day, I actually saw NNDM continue higher… and I was able to lock in a 40% in just a matter of hours!

 

 

Now, if you want to learn how I hunt down momentum stocks poised to move, then you may want to check out this special training session I put together.

In it, I detail my number 1 edge in the market, and how I’m able to trade on a part-time schedule.

 

Author: Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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