# How to Use Volume as Part of Your Stock Strategy Canonical: https://tradersdailydirection.com/how-to-use-volume-as-part-of-your-stock-strategy/ Trading the markets is never easy. “Mr. Market” is out to fool as many investors as possible on a daily basis… Especially traders who are new to the game and aren’t quite sure what to watch out for. This is why having a trading plan is absolutely crucial to your long-term success. Personally, I look to some of the greatest traders of all time for tips on how to create a strong trading plan. People like Paul Tudor Jones, who reminds us [**why only losers average down on their losing trades**](https://tradersdailydirection.com/why-only-losers-average-down-on-losing-trades/)… Folks like Mark Minervini, who tells us [**once a secular market leader puts in a major top**](https://tradersdailydirection.com/the-one-simple-rule-to-remember-before-you-chase-a-rising-stock/), there’s an 80% chance it will decline by 50% and a 50% chance that it will decline by 80%. And of course, Warren Buffett, who says, “You’ve got to be prepared when you buy a stock having them down 50 percent or more [**and be comfortable with it**](https://tradersdailydirection.com/beat-buffett-with-this-simple-strategy/).” But these are just some of the overarching principles that go into a serious trading plan. When you dive further into the world of technical analysis, there are lots of telltale signs that can help investors identify big breakouts ahead. ## **Technically Speaking** If you’ve been a reader of **_Traders Daily Direction_** for a while now, you likely know that [**I am a big fan of using volume**](https://tradersdailydirection.com/how-volume-tips-me-off-to-surging-stocks/) as part of my technical trading strategy. You can see the green and red volume bars at the bottom of the chart below, which measure how many shares traded on a given day. ![Daily Chart of Entravision Communications Corporation (EVC)](https://lh4.googleusercontent.com/m9gjI43CipsqfGyrnXRguhKjM4gd_LHWo0WwDNO8g00UQ706SUZbxLjYVHZPPKtyV3E4WzeBcfwkcrwgX7a9BvbMZwPFkCYxC37iFGWIA_4xvqigoQ8OzrtZWAt8517Qryq0Ka6G) **_Daily Chart of Entravision Communications Corporation (EVC) -- Source: TradingView_** I wanted to revisit **_Entravision Communications Corporation_** (EVC), which was part of the [**Oct. 11 Watchlist**](https://tradersdailydirection.com/watchlist-week-of-oct-11-2021/), because it is a great example of how to use volume to your advantage. From mid-September to early October, EVC was showing a period of lower-than-usual volume. At the same time, price was being compressed into a narrowing range. This let us know that the selling had been exhausted. The profit-taking period was over, and new supply was no longer coming to market. I noted in the Watchlist that a pivot had formed at $7.73 and that I would use the Sept. 29 low as a stop. The stock proceeded to slowly drift higher through that pivot level and eventually made a strong breakout on high volume heading into November. From $7.73, bullish volume accelerated further, and the stock rallied as much as 20.8% before profit-taking set in. This was a textbook breakout and a great example of how to use volume in your trading. But this isn't the only way to use volume to your advantage... ## **Another Way to Use Volume** **Houghton Mifflin Harcourt Company** (HMHC) is the Boston, Massachusetts-based learning company that was founded all the way back in 1832. It appeared on the [**Oct. 11 Watchlist**](https://tradersdailydirection.com/watchlist-week-of-oct-11-2021/) along with EVC. ![Daily Chart of Houghton Mifflin Harcourt Company (HMHC)](https://lh4.googleusercontent.com/JP5LuiTKeBmpJ8Pipgv22ydmqitMcEoqJGaXzeXyWiaYxKS7gjU2_6-TKL73CnMp3Xrmg1vPsgFsrUoB-sqTsYlPvuyd77RQEOsOuWCvEVWyudf_UCbfupGJ1o_PdYkEYWmQO-MY) **_Daily Chart of Houghton Mifflin Harcourt Company (HMHC) -- Source: TradingView_** At the time, I told you this about the stock: _With a Surge Score of 99/100, HMHC is the Lamborghini of stocks. It is in the elite top 1% of stocks outperforming all others in the market._ _After an earnings gap higher in early August, shares have been consolidating in the textbook compression pattern with clear resistance._ _Note the volume over the last two weeks. Down days saw very little volume while positive days experienced much higher volume._ _This is a good sign, as it is likely indicative of further institutional accumulation. In other words, the big players are still buying it._ _I will be looking to buy HMHC on a breakout to new high ground._ As you can see in the chart above, HMHC was indeed in a textbook consolidation between $13-$14 or so. It lasted for about three months before the big breakout happened. And perhaps even more amazing than the 25% move at the peak of the recent breakout is how we got tipped off by the action in the volume bars. [**When I made the comments above**](https://tradersdailydirection.com/watchlist-week-of-oct-11-2021/), the first couple of volume bars circled on the chart were already there and pointing to institutional accumulation. But then, a few candles before the breakout, we saw another large green volume bar and a quick move towards the top of the range. This was a great tell that a big move was coming. And despite a brief pullback on _low volume_, the move was made with a massive volume spike on the gap higher out of the consolidation range. Remember... the key takeaway here is that we were looking for a bullish volume _pattern_. Sure, there was a spike of red volume during the consolidation, but a pattern of red volume days never materialized. On the other hand, we saw that the bulls were coming back to this stock over and over again, increasing the chances for a potential breakout to the upside. ## **Suggested Reading** Finally, if you’re new to **_Traders Daily Direction_** or just want a refresher on my other key strategies, be sure to revisit some of my favorite articles… * [**Finding the Right Price to Buy a Rising Stock**](https://tradersdailydirection.com/finding-the-right-price-to-buy-a-rising-stock/) * [**How to Hack Company Earnings Reports**](https://tradersdailydirection.com/how-to-hack-company-earnings-reports/) * [**Why Stock Charts Should Matter to You**](https://tradersdailydirection.com/why-stock-charts-should-matter-to-you/) I think these and [**my other articles**](https://tradersdailydirection.com/stock-picks/) can help you get an edge on Mr. Market and improve your trading. Embrace the Surge, ![](https://lh3.googleusercontent.com/NB_cHajt0xvHCZ_gqv9Xde2-S0fNLhq0u5YOo0x28oZM7u2eaKmfb05g2-FN6W2KDU8FU2ZilOE3Y0XNKWiuHecvXcv3VKNg4x9sWX9cUiTml9dblJGN5t9nyvdKJ_sEdx5QE5x-) Ross Givens Editor, **_Traders Daily Direction_**