Simple way to determine what stocks are "thinly traded"

[fatowl]

I have been backtesting and optimizing trading systems in Amibroker for 4 years now. One system is trading live and is profitable. One thing that I have always needed, but could never get easily, was information on how active a stock was over time. My trading system needs strong volume to trade otherwise I get big slippage.

Dollar-volume is a good metric to determine liquidity in a stock, but is a value of $10M traded during the day a high number or low number? Stocks like XOM have dollar-volumes near $1.3B! Clearly that's a very liquid stock. But what about in history? Back in 1965, XOM had a dollar-volume of only $1.3M (1000x less than today).

Well obviously, inflation and increased trading activity have pushed the dollar-volume up across the whole stock market from 1965 to 2013, but how am I to know what stocks are liquid or illiquid over time? Here is what I did:

I found a time series of the monthly dollar-volume of all stocks listed on the NYSE dating back to 1964:

NYSEData.com Factbook: NYSE Group Share and Dollar Volume in NYSE Listed

NYSEData.com Factbook: NYSE reported share and dollar volume

Using this as a rough guide for how much trading activity goes on over the course of history, I can determine what stocks are liquid or illiquid. The symbol I gave this series is #NYSEDV (NYSE Dollar-Volume). Any stock with a dollar-volume above:

#NYSEDV/100,000

was deemed "liquid". All others were deemed "illiquid". Today, #NYSEDV/100,000 is about equal to $7.8M. I'm working on creating another time series of the number of listed stocks per month on the NYSE. This way, I can just divide #NYSEDV by the number of stocks in each month to get an average monthly dollar-volume per stock.

Anyway, I was excited that I found this and thought you guys could benefit from it.

 

[malaguti]

Anyway, I was excited that I found this and thought you guys could benefit from it.

Thanks Fatowl, I always thought every charting package had the ability to chart volume, and a signal line to determine whether volume on any particular day was high or low..I've clearly been spoiled all these years

 

[ZaBu]

I think I must be missing something here. There are various volume options that can be used in Amibroker's basic chart functions.

Here's a screen grab with volume and a volume moving average.

 

[fatowl]

Thanks Fatowl, I always thought every charting package had the ability to chart volume,

Amibroker can plot volume just like ZaBu showed. I had to create my own separate "symbol" within Amibroker named #NYSEDV, which has the total monthly dollar-volume of stocks on the NYSE as the closing value within Amibroker.

 

[Vicorka]

I would not try to compare current [dollar x volume] to the [dollar x volume] in 1964. It could be interesting for general, but in reality when you evaluate liquidity you work with current numbers.