Earlier this week, I received an great question from a FindLeadingStocks member about how to to incorporate volume into buying/selling stocks?

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Short answer: I don’t. Here’s why: Volume tends to confuse most people because conventional wisdom tells you that you must see heavy volume behind a breakout or a big move (for all the obvious reasons, strong institutional demand, smart money is accumulating a position, etc,etc) – but my research shows that it does not matter and is in fact a spurious correlation at best. Let’s look at the evidence…

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Take a look at these annual charts (same is true for weekly and daily time-frames) and the importance of “volume” speaks for itself. I remember years ago when BIDU first began trading, I didn’t buy the breakout because volume was below average. The stock SURGED, then had a 10/1 split, surged again and I missed it because “volume” was below average when it firs broke-out. That experience led me to conduct my own studies and my research concludes that volume simply doesn’t matter. Some monster stocks enjoyed heavy volume when they broke out and others didn’t.

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Another question which helped me was when I asked myself: Why does volume matter? If the the vast majority of your buy/sell decisions are based on fundamentals or price action- then everything else should take a back seat, including volume. On the other hand, if you make all your decisions based on volume as your primary indicator-then clearly this does not apply to you. But I have yet to meet anyone who does well by only using volume as their primary indicator and ignores price and fundamental inputs.