So it is the middle of the trading day and the stock that you have been stalking finally makes the move you have been waiting for and breaks out of that textbook basing pattern. But how do you know whether volume is likely to end the day at least 40% or 50% above average?
This post is for those who insist on “confirming volume” on the breakout day, i.e. volume being at least 40% or 50% above the daily average of volume. This is a desirable trait for a stock to have on its breakout day. It shows institutional interest is keen. And it is institutions that often produce post-breakout follow through of 20%-25% as they add on to positions.
Here is the dilemma: If a stock breaks out late in a trading session, it is easy to check volume on the day and calculate whether it is likely to confirm by day’s end. But what if it is mid-session when the breakout occurs? How do we know what volume will be by day’s end?
I use the following means of extrapolating intraday volume into something approximating end-of-day volume:
12:10 p.m. ET: 50% of session has elapsed (multiply volume by 2)
11:15 a.m. ET: 33% of session has elapsed (multiply volume by 3)
10:30 a.m. ET: 25% of session has elapsed (multiply volume by 4)
Each stock’s intraday volume pattern is different and each day’s pattern may be different for each stock. Like most things in trading, it is not exact.