Here’s another episode on hungry for returns where I answer your trading and investing questions about the stock market options and getting started with investing.
If you want your question answered by voice or even by video, then feel free to submit a question by voice.
Today’s question is all about figuring out the intraday trading volume.
I had someone write in, and it was one of the comments on YouTube that said: Can you calculate the intraday volume. Meaning, do I know midday if the volume is good?
Because volume is important, and then you know if the stock is breaking down. I’m going to share with you a simple approach to calculating midday volume. It’s not going to be super precise. It’s not going to be a simple formula that you could just implement.
You’ll just have to do a little bit of thinking. But I want to do it this way. That way, you could understand the basic concept. If you want to create a complex formula with algebra and making it all fancy in one line, then you can do that as well.
To make things simple, I’m going to break it down, and then you could take it a step further and evolve it.
It starts with the hours in a day. Let’s say you’re looking at a stock like Carmax right here.
I see the average volumes about 960K; it could be about a million. And I’m getting that from the box here or this white line average meaning 20 trading days in a month.
It’s an average of 20 on the volume. That’s why we do it because we’re excluding weekends. There are 20 trading days in a month. That’s our average volume.
Now, is this trading above-average volume or below-average volume?
Well, that’s the thing to find out and figure out. How do you do this mid-day because today I don’t know without doing some calculation. That’s what I’m going to show you.
If a stock is trading with more volume, that means it’s going to continue to accelerate and pick up speed as time moves forward.
That means it’s strong and has some strengths. And you might want to get in it a little bit earlier. First, you figure out what’s the average volume.In our case, that’s our average volume on a day-to-day basis – 1,024,000.
I want to take a look at the average volume, and I want to divide that by the trading hours. In our case, they’ll be 6.5 hours.
This gets me the hourly. Now I get the hourly volume traded. If we take a calculator, this is what we get.
1,024,000/6,5=157,538 shares
Now we compare to how many hours went by. Where are we right now?
Is that one hour into trading? Two hours in trading, 3 hours into trading.
Well, if it’s 3 hours into trading, I would multiply this times 3. And then, is it now higher or lower?
Let’s say, hour 1. That would be at 10:30 New York time.
So, hour number one, I need to be doing 157,538 shares. By hour number 2, I need to be doing 315,076. By hour number 3, I need 472,614.
Then what you do is compare. Are we on hour 1, hour 2, or hour 3? Where are we?
If we look at the current time right now, it is 11:02 New York time.
You can see that right there. That means we have a half-hour that we’ve traded, or we’re missing a half hour if you think of it that way. Because of 9:30 to 10:30 and 10:30 to 11:30. It’s almost 2 hours.
What you’re looking at is by hour 2 I need about 315,000 shares. And now we’re trading already 312,000 shares. And we haven’t even hit the second hour yet.
Are we trading higher or lower on the volume?
And in this case, it is much higher, because we still have 20 minutes to go for 2 full hours. It’s trading 312,000, and when we look at in our paper, we should be at about 315,000 if we were doing the average.
Of course, this is assuming you’re doing a linear approach to volume. But you should be about 315,000 by 11:30. That’s because you’re looking at your second hour. By 11:30 – 315,000.
But in our case, when we look at it, we’re already at 312,000, and we still have about twenty minutes to go in the trade or trading.
It’s going above-average volume. And you can also see that when you look at the wide price spread. That’s the way that you would do the simple approach to calculation.
I’ve created an excel sheet here. You could make your own if you want. If we put average trading volume – 1,024,000. Put how many hours went by. And what’s the current volume, it’s 312,700.
You have two hours into it. In your second hour, in the end, you’re still got 20 minutes to go. Your current volume is 312; you should be at 315 within about twenty minutes. Do you think we’ll probably hit that?
Yeah, absolutely. In this case, by 11:30, we should be surpassing that. And you can slowly watch this as time moves forward as you continue to look at the stock.
Once you hit 11:30, just check out your stock. See, is it above or below 315,000. That’s what you’re looking at. You’re evaluating these things. And you’re comparing it, and if it’s higher than in that case, it’s an above-average volume if it’s lower than it’s below-average volume.
That gives you an insight into the strength of the move in the stock.
That’s how you could do it. You could create your algebra thing. And that way you can make it more advanced.
But just to break things down, this is a simple approach to looking at it and calculating the volume to seeing if it’s higher or lower.
Feel free to take it a step further. And then you can do your own formula and calculation. You could even write your own Python script, PHP script.
