Shankapotamus' Playpen

[Chart Addict]

On Volume, Liquidity and TSTA.

Follow along folks - Some good points are raised herein.

On Friday, at 11:08:06, 7,900 shares were transferred at $0.2650. At 11:08:07, 2,100 shares were transferred at the same price. More than likely, this was a single 10,000 share trade. (I have seen shares arrive in my own orders broken up this way, though I have never been charged for two transactions.) Later in the day, someone transferred 100 shares, making the total volume for the day 10.1K. To be generous, three trades in total were recorded.

In looking at TSTA's recent trading history, it is not at all uncommon for only two trades to be conducted on any given day.

See: http://www.hotstocked.com/companies/t/turbosonic-technologies-inc-TSTA-level2-56379.html

I also verified the volume and number of trades for Friday at otcmarkets.com, which also provided a daily average of.7,906 shares traded averaged over a 3 month period.

There are three aspects to “trading volume” that must be understood. There is the raw share volume, the dollar volume, and the number of actual trades.

Consider that just one trade consisting of 1,000,000 shares of a stock priced at $0.0001 results in a dollar volume of only $100.

Now let's look at some real world examples from Friday. At the top of the list in number of trades (which is how I like to sort the list because it gauges market interest) was SEFE, with 3,607 actual trades, a share volume of 7,263,014, and a dollar volume of $12,890,061. Nice!

Next in line was SNPK. # trades - 3,442; share vol 14,664,532, $ vol $9,151,874. LQMT. # trades - 615; share vol - 3,436,672, $ vol - $1,198,245; MSLP: # trades - 514, share vol - 34,868,374, $ vol - $668,527.

Bearing those numbers in mind, how attractive does MIKP look to you? By golly, look at the volume! 30,546,050 shares exchanged hands on Friday. But, only 20 trades were actually made, and the dollar volume was but $6,153.

They never tell you this in books or trading seminars, but measuring volume involves a triple-edged sword.

This all relates to the concept of “liquidity.” Many books suggest one minimum level or another, typically in the 500,000 shares traded range as the minimum. At these price levels, however, I find it crucial to look closely at the actual number of trades, and the dollar volume to truly gauge a stock's “liquidity.”

There is an entire universe of apparently worthy companies whose stocks trade once, twice, or thrice a day, even as their raw number of shares exchanged hovers around 10K. By all means, put them on your watch list, if there's any room left for them. That said, I'd recommend against buying into any of them unless and until they provide you with the triple-edged sword, and a sound chart pattern.