Understanding trading volume and its use as a signal for entering or exiting stocks is an invaluable tool for all traders. Whether it is used to confirm trends or reversals or provide historical context, trading volume can give substance to a stock’s price action and aid an investor in their decision to either buy or sell.
One particular volume phenomenon that can provide valuable insights is weekly spikes. Often a company may have an impressive quarter, surprising the market and institutions with positive earnings that generate obvious interest. These institutions can then spend weeks accumulating the stock and creating buying pressure.
Such a spike may not be a signal on its own, however, it may be a strong indicator that the stock warrants some attention and should be on an investor’s radar. Consequently, they can try and find an actionable and tactical way to enter with low risk.
By doing this, there is now the opportunity to not only buy the stock on a short-term pattern, but with catalysts including great earnings, and a strong weekly volume thrust that presents the support of an institution with deep pockets accumulating over several weeks, or even months.
These footprints, particularly against the backdrop of a weak market, where many would logically expect a stock to be punished after it has enjoyed a solid run, show those truly leading companies that rise the most, yet come down the least.
When companies are already in a healthy position, with strong fundamentals and strong earnings and sales, traders can be confident in holding a quality stock that will benefit even further as positive market activity returns.