Most active stocks, also known as volume leaders, are public companies with the highest volume of shares traded or the highest dollar volume of shares traded during the most recent trading day. A stock may experience above-average trading volume when important new information that impacts its valuation is made known to the public. This creates pressure among investors to either buy or sell the company's shares, leading to heavier trading volume and strong price momentum in the stock. How to trade the most active stocks.
Volume is essential when identifying stocks that offer profitable trading opportunities
The list of most-active stocks identifies the companies that trade the most shares or trade the highest dollar volume of shares over one trading day. Investors can find a list of the most active stocks every day for every major stock exchange (New York Stock Exchange, NASDAQ, AMEX, etc.).
A stock may experience above-average trading volume when important new information affecting the stock's valuation becomes public knowledge. This creates pressure among investors to either buy or sell the stock, leading to heavier trading volume and strong price momentum in the stock.
In this article we’ll define what the most active stocks mean and why a stock may make the most active list. We’ll also go over a list of strategies that traders can use to narrow down the most active list to identify their best trading opportunities.
What is the Difference Between Dollar Volume and Share Volume?
Most active stocks fit into one of two categories. Dollar volume means the total value of the shares trading over a period of time. To calculate dollar volume multiply a stock’s trading volume by its price. For example, if Company ABC has a total trading volume of 100,000 shares and is trading for $20 a share, the dollar volume is 2,000,000 (100,000 x 20). Institutional investors use dollar volume to determine if a stock has enough liquidity to execute large block trades.
On the other hand, individual investors, particularly day traders will pay more attention to stocks with the highest average daily trading volume (ADTV). This is the total number of shares that are selling or trading over a period of time, typically a trading session. As part of their technical analysis, ADTV helps traders determine when to enter (buy) or exit (sell) a position they have in a security. These investors are typically looking to buy and sell a security, often times in the same day. For that reason, they use average daily trading volume to select securities.
What Causes a Stock to be Most Active?
In many cases, a stock becomes most active because there has been a significant change in stock price. Such a change is usually due to some newsworthy event. A positive earnings report can generate interest in the stock causing the price to rise. Conversely, a negative earnings report can put selling pressure on the stock, causing the price to decline. This increased trading volume can stay in place for a while as other investors jump in for fear of missing out (FOMO).
However, some stocks are consistently on the most active list simply because they are popular companies. Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL) are good examples of stocks that are consistently among the most active stocks regardless of what is happening with the stock. In 2021, the meme stock movement saw many meme stocks such as GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) make the list of most active stocks.
What Are the Characteristics of “Most Active” Stocks?
An active stock is a stock that is generating a lot of trading activity throughout a given trading day. The reasons why these stocks are active are the same as the reason why a stock makes the most active list (i.e. there is usually some news about the company that is generating interest in the stock). Many of the most active stocks share some common traits:
- They trade a large number of outstanding shares. Outstanding shares are the number of shares of stock that a company has issued and can be bought and sold by public and institutional investors. These are sometimes referred to as shares in float and are different from the number of authorized shares a company may issue.
- They have a high amount of liquidity. Liquidity in the form of active stocks simply means there is high demand for a stock. If a stock is experiencing a high trading volume, it is usually a signal that there is high demand that makes it easier to buy and sell.
At different times, an asset class may go through periods where they exhibit more or less liquidity. For example, if a trader is attempting to trade stocks in after-hours trading, they may find a lack of buyers. And most traders know that volume tends to peak at the beginning and the end of a trading day.
How to Trade the Most Active Stocks
The list of most active stocks can be a useful guide for investors. In fact, it is sometimes called a road map for day traders. But with so many options to choose from, how can traders know which stocks to choose? Here are some trading strategies that any investor can apply.
- Assign a minimum and maximum percentage move (expressed in +/- terms) in price level and look for stocks that fit that range – All of the most active stocks are volatile. But it’s possible to have too much or too little volatility. The reason to choose a minimum percentage move is to ensure that the stocks you choose have enough price movement to get the return a trader needs.
Conversely, the reason to assign a maximum value is to avoid having a stock that the stock can have too much movement which could trigger any trailing stops an investor has in place which can add risk.
- Assign an appropriate volume – Just because a stock is active does not mean it trades with enough volume to allow traders to easily move in and out of trades. For example if a stock is up 10% but does not trade a high volume of shares.
Most traders want to see volume that is measured in tens of thousands of shares in a specified time period (like five minutes). Once you find a stock whose price has moved up or down within the range you specify, make sure it is trading at a high enough volume to let you easily enter and exit a trade.
- Focus on one index – Once you have assigned your percentage range and volume, look at the major indices and focus your attention on the index that has the most stocks that meet those criteria. Most trading platforms will break down the most active stocks by one of the major indices (NYSE, NASDAQ, or AMEX).
- Pay attention to the stocks that are most active in the pre-market trading period – This can allow you to monitor technical indicators such as support and resistance levels for stocks that meet your criteria.
- Pay less attention to the after-hours most active list – After hours trading can be very volatile, but news that breaks immediately after the market closes does not always continue in the same direction once pre-market trading begins the following day.
- Know how to interpret the most active by dollar volume list – This list largely exists for the institutional investors and large hedge funds that are making block trades with large sums of money. While it may help keep you abreast of larger trends in particular sectors. In general, investors who are trading the most active list are looking for individual stocks that are trading actively on their own merits.
Some Final Thoughts on Trading the Most Active Stocks
Active traders have many strategies for executing successful trades. One of the common sorting metrics they use is to find stocks that have high volume (liquidity) and show a particular percentage price movement. When a stock is trading at exceptionally high volume, it is considered to be one of the “most active” stocks.
Institutional investors tend to prefer finding the most active stocks by dollar volume. This is because they are determining if a stock has enough liquidity to execute large block trades On the other hand, retail investors tend to look for most active stocks by share volume. This is because they need to find the stocks with the highest liquidity so they can enter and exit trades at a favorable price.
Every day, investors can get a list of the most active stocks for a given exchange (NYSE, NASDAQ, AMEX, etc.). This list can be quite extensive so many traders use different strategies to help filter the list to identify stocks that meet their specific trading criteria.
