I have a question.

I noticed in one of your blog posts a comment from one of your traders during trade review. Specifically it was a statement anticipating somewhat of a certain length move based on daily avg volume/relative volume compared to ATR.

Now, I realize there are many things that move a stock- but my question is more specific, which is: if a stock is A) moving w/ the market, B) has above average relative volume at entry point, C) maintains that higher-than-average volume level (say 2x or above) and D) have good liquidity/order flow, etc., should the length of anticipated movement in relation to ATR move in accordance with the higher volume?  I.e., 2-3x volume = 2x or more ATR as anticipated volume? There are many times I use ATR, and if volume is good I will tier in. But I’m always somewhat hesitant as to the proper target exit point because experience has shown me that ATR, although accurate to a point  for target exit areas (confirmed of course with price & volume action) with normal or slightly elevated volume runs short, doesn’t work as well with higher volume momentum runs.

I used the volume = price movement correlation as I question with a couple movers today for example, VMW & EXPR.

VMW ATR (finviz) = 2.09. Relative volume today for VMW was 3.4.  Take that x the ATR of 2.09 = a $7.12 move.   Todays range (open to close) was = $7.45.

EXPR ATR = .65. Relative volume today was thru the roof = 7.5. Can’t expect that obviously but todays range was $2.14 or 3.2X ATR. My experience is that unless its extremely unusual circumstances – beyond 2.5 – 3X ATR is as good as it gets on an intraday basis. Bottom line: does this correlation hold true a lot? I will do more research on my own – but thought I’d ask the you/the source too – :0).

Thanks. And thanks for all the great info you and Steve continue to put out.   It’s amazing what someone paying attention can learn just watching and listening to you guys.

So I love the work you are doing with your trading. And your question requires a complicated answer, which does not fit for a blog post unfortunately. If you were on my desk, a comprehensive answer would take a fifteen minute one-one-one conversation between me and you. But I will give you a start and you can work from there.

Increased volume may be a signal of a greater intraday move. I like your focus and work to make mathematical sense of this. Keep going here.

Determining how far a stock can move intraday takes experience, structured thought, and trading tools. Spencer does a wonderful job preparing the desk for the best stocks to trade with the SMB AM Meeting because he has seen 15 plus years of trading patterns. Often I sit on the desk and wonder why some of our traders are not focused in stocks I sense can really move. Often intraday trading is more about being in an opportunity that can pay you if you are right and leave you only with a small loss if you are wrong. It isn’t about picking the direction of a stock correctly; it’s about being in a potentially explosive move that can be the game.

I like to start with analyzing the news, the intraday fundamentals for an opportunity. Will this news bring heavy new order flow? In The PlayBook I outline many examples of  news that will create a Super Stock In Play, a stock that may really move a lot intraday. So if the news will bring heavy order flow intraday, then I play for a bigger move.

I like to watch the first few legs of a move. Over time you get a sense of how far a stock should move when it makes a strong move.  And then you will see very explosive first leg moves. You may particularly see this during an Opening Drive. If I see an explosive first move, then I will expect a bigger intraday move from the stock.

Reading the Tape gives us clues to how big a move a stock can make. I want to see a clean stock, with levels held and without the above/below and wicks everywhere nonsense. The cleaner a stock holds important levels the more I suspect it can move. This cleanliness indicates out-sized directional interest.

Also I look at the longer term technicals and stocks that have a distance to travel to their next important level.

This was not meant to be an exhaustive review of how to determine how far a stock can go.

But I hope that gives you some good ideas to start working on.

Tomorrow we can be better than today!