psheridan050
52 posts
msg #56476
- Ignore psheridan050 |
11/6/2007 11:36:30 AM
Hi guys,
Here is a pretty basic question that I’ve been thinking about. It has to do with volume and liquidity. What are some of the general guidelines you use to determine if a stock has enough volume to get in and out of with reasonable fills? I realize slippage will always be an issue, but I’m sure most of you have a min Volume or a min Average Daily Volume that you use as your guide. Currently I’m using Average Daily Volume(30) >1,000,000 to filter my picks. I don’t have any trouble getting in and out of stocks using this (although the first 15 minutes sometimes results in slippage although that’s expected no matter what) but I am unsure if I am limiting myself unnecessarily.
Something I’ve also been thinking about is if I should be filtering the volume based on predicted share size. For example, if I am going to trade 200 shares of stock XYZ, It should have a minimum Daily Volume of 250,000 shares. If I am going to trade 2000 shares of stock ABC, it should have a minimum Daily volume of 750,000 shares. This method seems like it would be the best practice, although I would still need to figure out the share size vs. min volume size. I don’t think there is any way to come up with this amount except through experience with live trades. I’m pretty much unwilling to test the limits trade after trade with live trades (resulting in lots of slippage I’m sure before I find the sweet spot per trade size) but I’m sure others have already been there and done that.
Anybody want to add their 2 cents?
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five40
23 posts
msg #56479
- Ignore five40 |
11/6/2007 12:05:46 PM
I am a new trader and I have also wondered about this.
For me, the stock price determines the number of shares I buy when entering a trade. It would be nice to build a filter that took that into consideration so that there is enough volume to accommodate my trading style.
Something like this:
Min Avg Volume = stock price * N
Where N = the magic multiplier that works?
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lockwhiz
206 posts
msg #56484
- Ignore lockwhiz |
11/6/2007 12:45:44 PM
It is the actual number of traders that that are buying and selling that is driving the price... so of course volume and price are inter-related. I break it down into simply how much cash is moving in and out of the equities.
...although it still boils down to an arbitrary value.
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curmudgeon
103 posts
msg #56499
- Ignore curmudgeon |
11/6/2007 8:27:46 PM
I don't like to listen to crickets when I hit the sell button. Usually 1 mil is the minimum and that's still thin sometimes.
Pretty much if the trend is up and the volatility is high then volume will be too. You have to watch the float turnover though. If a stock is turning the float 1 or more times a day be ready to bail quick.
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EWZuber
1,373 posts
msg #56518
- Ignore EWZuber |
11/7/2007 1:57:36 PM
It's going to depend greatly on how many shares you usually trade. If you are trading >1,000 shares then you obviously need more volume than someone trading a couple hundred.
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psheridan050
52 posts
msg #56523
- Ignore psheridan050 |
11/7/2007 4:44:33 PM
EWZuber
Thats why im thinking that there must be some kind of ratio of minimum to volume to shares to be traded. Im sure there is no "magic number" that determines how many shares a specific amount of daily volume can support (without undo slippage), but what I am wondering is if there a bit of a guidline that can be followed. Ive heard and read many times that you should never even enter a stock that does less than a million in volume. But like you indicated, there is a difference for one guy thats trading 200 shares and another that is trading 5000. Slippage isnt one of those things that can be backtested. Some people will say just write off 2% or something like that, but where do they get that number from? Experience with their own trading? And if that is the case, how did they quantify this against the amount of shares they are trading? Im curious if there are any traders out there who have gathered statistics on their slippage to determine what kind of pattern it forms. Statistics on things such as time of day, volume, and share size.
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nikoschopen
2,824 posts
msg #56524
- Ignore nikoschopen |
11/7/2007 5:57:44 PM
Slippage is more common among stocks with a large spread. Incidentally, they're thinly traded stocks that can't handle large orders. So why are you throwing in that 5,000 share order in the first place? ;^)
If ure a day trader, intraday volume usually don't amount to much. However, if ure trading horizon is anything longer than that, I would suggest that you concentrate not so much on the "minimum" but how the volume fares in relation to its average? For instance, the stock might be trading three times above its normal volume, which should tell you that something is brewing.
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TheRumpledOne
6,407 posts
msg #56527
- Ignore TheRumpledOne |
11/7/2007 7:36:54 PM
Hey EWZuber... long time,no see!
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guru_trader
485 posts
msg #56587
- Ignore guru_trader |
11/9/2007 7:18:59 AM
I forget who, but someone on this forum had mentioned setting a limit to buying no more than 5% of daily traded volume. If my time horizon to exit was 3 days, then I might set an upper limit of 5% of the 3-day moving average of daily traded volume. However, this can often conflict with my money management strategies as they may suggest buying more than 5% of average daily traded volume.
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EWZuber
1,373 posts
msg #56684
- Ignore EWZuber |
11/12/2007 1:53:44 AM
Generally I won't trade any stock that has much of a spread. Ideally I like to see one cent between the bid and ask. Low volume stocks usually have a considerable spread & that adds considerable risk, in and out.
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