{"id":7062,"date":"2010-09-14T16:30:01","date_gmt":"2010-09-14T20:30:01","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=7062"},"modified":"2023-08-01T19:40:48","modified_gmt":"2023-08-01T23:40:48","slug":"traders-ask-why-dont-you-trade-light-volume-stocks","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks","title":{"rendered":"Traders Ask: Why Don’t You Trade Light Volume Stocks?"},"content":{"rendered":"

Hey Mike.<\/p>\n

Hope you have had a great weekend.<\/p>\n

In your book (In Play section)\u00a0you mention you prefer the stock to do at least 1 million shares, and that you stay away from stocks where the daily volume is likely to be less than 600k shares.<\/p>\n

The thing that makes me confused is that this makes no sense to me regards to your risk. Let me explain what Im thinking here, I might be off?<\/p>\n

 <\/p>\n

\n

The\u00a0value traded in a 600k shares per day\u00a0stock is a huge difference if the stock costs 1 dollar compared to 100 dollar, and there for effects your buying power in that stock right?<\/p>\n

Even though the volatility can be different in cheap or more expensive stock, the risk per tick might be the same if the spread is the same.<\/p>\n

Say you buy 100 shares of the 1 dollar stock, and 100 shares of the 100 dollar\u00a0stock. There is a big difference in buying power between those two buys, but if the\u00a0spread is the same in those two stocks, your\u00a0risk per tick is the same right?<\/p>\n

So the question is really: Do you only look for a minimum of shares traded in a stock, or do you select stocks from daily value turnover as well?<\/p>\n

Because there might be very little value traded in a very sheap stock, even though it trades 600k shares\/day.<\/p>\n

Bella Responds<\/strong><\/p>\n

Great question! I completely agree with your premise that for stocks with less volume you can control your risk with less size.<\/p>\n

I use 600k shares of volume as my cutoff because of risk. In my experience when a stock has too little volume on an intraday basis I cannot control my risk. \u00a0As a professional trader my first concern is controlling my risk. I want to find set ups where my upside is 5 and my downside is 1. When a stock has too little volume I have trouble controlling my risk. I cannot tell what my downside really is. I might think my downside is 30c, but with a stock of less volume, and less liquid I may learn my risk was really 60c. This is not good.<\/p>\n

A few trading thoughts:<\/p>\n

1. There are days when a stock with an average daily volume of less than 600k shares will do 3 million plus. Generally this is because of significant and fresh news. I will trade the stock on those days. We say it is In Play.<\/p>\n

2. I do not trade stocks under $5, except on rare\u00a0occasions. But I know a few traders who dominate in this space.<\/p>\n

3. I do limit my tier size when I am a little unsure of my downside risk. So I might cut my tier size by 50-70 percent until I feel comfortable I can truly measure my risk.<\/p>\n

4. There are traders who crush stocks everyday with very light volume. These are just not the stocks that make sense to me.<\/p>\n

5. The issue is risk. It is not the fact that the stock does less than 600k daily, it is that I probably cannot control my risk. As a trader all I am trying to do is make excellent risk\/reward decisions. If I cannot define my risk then I cannot make solid risk\/reward calls.<\/p>\n

6. Finally we measure the average daily range for our stocks before the open. If we are not optimistic that a stock will move intraday at least a few points then we search for a more active stock.<\/p>\n

Those are some of my thoughts on dealing with low volume stocks. Perhaps they may help you develop your own rules. But in the end you must learn to make your trading system your own.<\/p>\n

You can be better tomorrow than you are today!<\/p>\n

Mike Bellafiore<\/p>\n

One Good Trade<\/em><\/a><\/p>\n

The PlayBook<\/em><\/a><\/p>\n

\"\"<\/a><\/p>\n

no relevant positions<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Hey Mike. Hope you have had a great weekend. In your book (In Play section)\u00a0you mention you prefer the stock to do at least 1 million shares, and that you stay away from stocks where the daily volume is likely to be less than 600k shares. The thing that makes me confused is that this makes no sense to me … Read More<\/a><\/p>\n","protected":false},"author":144,"featured_media":48377,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10,908],"tags":[162,4674,30,18,752,1193,653,1354,1349],"class_list":["post-7062","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mike-bellafiore-bellas-blogs","category-traders-ask","tag-day-trading-blog","tag-one-good-trade","tag-prop-trading","tag-smb-capital","tag-trade-of-the-day","tag-trader-education","tag-trader-training","tag-trading-coach","tag-trading-mentor"],"yoast_head":"\nTraders Ask: Why Don't You Trade Light Volume Stocks? | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Traders Ask: Why Don't You Trade Light Volume Stocks? | SMB Training\" \/>\n<meta property=\"og:description\" content=\"Hey Mike. Hope you have had a great weekend. In your book (In Play section)\u00a0you mention you prefer the stock to do at least 1 million shares, and that you stay away from stocks where the daily volume is likely to be less than 600k shares. The thing that makes me confused is that this makes no sense to me ... Read More\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks\" \/>\n<meta property=\"og:site_name\" content=\"SMB Training Blog\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/smbcap\/\" \/>\n<meta property=\"article:published_time\" content=\"2010-09-14T20:30:01+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-08-01T23:40:48+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"684\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Bella\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@smbcapital\" \/>\n<meta name=\"twitter:site\" content=\"@smbcapital\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Bella\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks\"},\"author\":{\"name\":\"Bella\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#\/schema\/person\/80500a901d0e5ce0a27fa996bb1b9161\"},\"headline\":\"Traders Ask: Why Don’t You Trade Light Volume Stocks?\",\"datePublished\":\"2010-09-14T20:30:01+00:00\",\"dateModified\":\"2023-08-01T23:40:48+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks\"},\"wordCount\":642,\"commentCount\":1,\"publisher\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg\",\"keywords\":[\"day trading blog\",\"One Good Trade\",\"prop trading\",\"smb capital\",\"trade of the day\",\"trader education\",\"trader training\",\"trading coach\",\"trading mentor\"],\"articleSection\":[\"Mike Bellafiore's (Bella's) Blogs\",\"Traders Ask\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks\",\"name\":\"Traders Ask: Why Don't You Trade Light Volume Stocks? | SMB Training\",\"isPartOf\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg\",\"datePublished\":\"2010-09-14T20:30:01+00:00\",\"dateModified\":\"2023-08-01T23:40:48+00:00\",\"breadcrumb\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#primaryimage\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg\",\"contentUrl\":\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg\",\"width\":1024,\"height\":684},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.smbtraining.com\/blog\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Traders Ask: Why Don’t You Trade Light Volume Stocks?\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#website\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/\",\"name\":\"SMB Training Blog\",\"description\":\"Lessons from the trading desk\",\"publisher\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.smbtraining.com\/blog\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#organization\",\"name\":\"SMB Training\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2022\/07\/Logo-e1658419502954.png\",\"contentUrl\":\"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2022\/07\/Logo-e1658419502954.png\",\"width\":230,\"height\":81,\"caption\":\"SMB Training\"},\"image\":{\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#\/schema\/logo\/image\/\"},\"sameAs\":[\"https:\/\/www.facebook.com\/smbcap\/\",\"https:\/\/x.com\/smbcapital\",\"https:\/\/www.youtube.com\/user\/smbcapital\"]},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.smbtraining.com\/blog\/#\/schema\/person\/80500a901d0e5ce0a27fa996bb1b9161\",\"name\":\"Bella\",\"description\":\"Mike Bellafiore is a co-founder of SMB Capital, a day trading firm which takes great pride in its exceptional training program. SMB Capital is an equity prop trading desk that trades on 5th Avenue in New York City. Mr. Bellafiore is a graduate of the University of Connecticut School of Law. He has traded professionally for more than a decade.\",\"sameAs\":[\"https:\/\/www.smbtraining.com\/blog\/bellas-blog\"],\"url\":\"https:\/\/www.smbtraining.com\/blog\/author\/bella\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Traders Ask: Why Don't You Trade Light Volume Stocks? | SMB Training","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks","og_locale":"en_US","og_type":"article","og_title":"Traders Ask: Why Don't You Trade Light Volume Stocks? | SMB Training","og_description":"Hey Mike. Hope you have had a great weekend. In your book (In Play section)\u00a0you mention you prefer the stock to do at least 1 million shares, and that you stay away from stocks where the daily volume is likely to be less than 600k shares. The thing that makes me confused is that this makes no sense to me ... Read More","og_url":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks","og_site_name":"SMB Training Blog","article_publisher":"https:\/\/www.facebook.com\/smbcap\/","article_published_time":"2010-09-14T20:30:01+00:00","article_modified_time":"2023-08-01T23:40:48+00:00","og_image":[{"width":1024,"height":684,"url":"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg","type":"image\/jpeg"}],"author":"Bella","twitter_card":"summary_large_image","twitter_creator":"@smbcapital","twitter_site":"@smbcapital","twitter_misc":{"Written by":"Bella","Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#article","isPartOf":{"@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks"},"author":{"name":"Bella","@id":"https:\/\/www.smbtraining.com\/blog\/#\/schema\/person\/80500a901d0e5ce0a27fa996bb1b9161"},"headline":"Traders Ask: Why Don’t You Trade Light Volume Stocks?","datePublished":"2010-09-14T20:30:01+00:00","dateModified":"2023-08-01T23:40:48+00:00","mainEntityOfPage":{"@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks"},"wordCount":642,"commentCount":1,"publisher":{"@id":"https:\/\/www.smbtraining.com\/blog\/#organization"},"image":{"@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#primaryimage"},"thumbnailUrl":"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg","keywords":["day trading blog","One Good Trade","prop trading","smb capital","trade of the day","trader education","trader training","trading coach","trading mentor"],"articleSection":["Mike Bellafiore's (Bella's) Blogs","Traders Ask"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#respond"]}]},{"@type":"WebPage","@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks","url":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks","name":"Traders Ask: Why Don't You Trade Light Volume Stocks? | SMB Training","isPartOf":{"@id":"https:\/\/www.smbtraining.com\/blog\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#primaryimage"},"image":{"@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#primaryimage"},"thumbnailUrl":"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg","datePublished":"2010-09-14T20:30:01+00:00","dateModified":"2023-08-01T23:40:48+00:00","breadcrumb":{"@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#primaryimage","url":"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg","contentUrl":"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2019\/05\/chicago-traders.jpg","width":1024,"height":684},{"@type":"BreadcrumbList","@id":"https:\/\/www.smbtraining.com\/blog\/traders-ask-why-dont-you-trade-light-volume-stocks#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.smbtraining.com\/blog"},{"@type":"ListItem","position":2,"name":"Traders Ask: Why Don’t You Trade Light Volume Stocks?"}]},{"@type":"WebSite","@id":"https:\/\/www.smbtraining.com\/blog\/#website","url":"https:\/\/www.smbtraining.com\/blog\/","name":"SMB Training Blog","description":"Lessons from the trading desk","publisher":{"@id":"https:\/\/www.smbtraining.com\/blog\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.smbtraining.com\/blog\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.smbtraining.com\/blog\/#organization","name":"SMB Training","url":"https:\/\/www.smbtraining.com\/blog\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.smbtraining.com\/blog\/#\/schema\/logo\/image\/","url":"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2022\/07\/Logo-e1658419502954.png","contentUrl":"https:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2022\/07\/Logo-e1658419502954.png","width":230,"height":81,"caption":"SMB Training"},"image":{"@id":"https:\/\/www.smbtraining.com\/blog\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/www.facebook.com\/smbcap\/","https:\/\/x.com\/smbcapital","https:\/\/www.youtube.com\/user\/smbcapital"]},{"@type":"Person","@id":"https:\/\/www.smbtraining.com\/blog\/#\/schema\/person\/80500a901d0e5ce0a27fa996bb1b9161","name":"Bella","description":"Mike Bellafiore is a co-founder of SMB Capital, a day trading firm which takes great pride in its exceptional training program. SMB Capital is an equity prop trading desk that trades on 5th Avenue in New York City. Mr. Bellafiore is a graduate of the University of Connecticut School of Law. He has traded professionally for more than a decade.","sameAs":["https:\/\/www.smbtraining.com\/blog\/bellas-blog"],"url":"https:\/\/www.smbtraining.com\/blog\/author\/bella"}]}},"_links":{"self":[{"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/posts\/7062","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/users\/144"}],"replies":[{"embeddable":true,"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/comments?post=7062"}],"version-history":[{"count":3,"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/posts\/7062\/revisions"}],"predecessor-version":[{"id":56146,"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/posts\/7062\/revisions\/56146"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/media\/48377"}],"wp:attachment":[{"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/media?parent=7062"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/categories?post=7062"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.smbtraining.com\/blog\/wp-json\/wp\/v2\/tags?post=7062"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}