Volume and the Investor

One of the rules I follow (most of the time) are to only pick stocks that consistently trade over 300k/day.  Beyond looking at the daily average of a stock - it is important to look at the Historical Price of a stock.

One stock I am currently following is HEAT:
http://finance.yahoo.com/q/hp?s=HEAT

If you scroll through HEAT's prices in the last two months - it has not traded below a volume of 300k/day.  The last time it traded below 300k volume was on November 13, 2009.  Volume is important because it allows a stock's price to move.  That movement will be either an up in the price per share - which is what we want in a bull market.  Also, when I qualify a stock - volume is a great indicator of INCREASING/DECREASING INSTUTIONAL OWNERSHIP.

When scanning historical prices - to identify Institutional Presence in a stock, you want to find those numbers that just don't look like it belongs in the series of numbers you are looking at.  Once you identify those - compare it to the previous day's price and that day's price.  Generally, when the stock's price has gone down and volume has increased DRAMATICALLY - it is a tell tale sign that an institution is slowly clearing out a stock.  In other words - the big boys are dumping this stock.  Still being at the party when everyone has already left is never a good thing.  It only leaves you having to clean up the mess and you pay for it with your OWN MONEY. 

On the other hand, when we identify those outliers in the historical price data and we see a nice uptrend in price per share - it means there are institutions that are taking a position in a stock. 

As a small investor - it is very important to follow the institutions because of its ability to take a very large position on a stock.  Their access to capital allow them to dramatically affect the value of a stock.  A Company's Market Cap is based of price per share times the number of shares outstanding.

In the bigger scheme of things - even though our 100 shares of HEAT may be a lot to you and I, to the institutional - it is practically non-existent.  The key is to follow what attracts the institutional and go there. 


BD