STOCK MARKET: LOW VOLUME = HIGH VOLATILITY

Is it a good time to buy stocks when the market shows low volume like we will see this week during Thanksgiving? A lot of people are busy with family events and others are out shopping which means little time will be devoted to thinking about stocks and planning their investments.

It is during low volume weeks like these that we often see a lot higher volatility. When fewer people are buying and selling during these slow days, the stock trades that do occur move the market up and down a lot more than they do during normal volume trading days. Low volume = increased volatility.

Day traders love the market to be volatile because they make their money quickly when the market moves one way or another. When the market is moving sideways, it is harder for them to pick a direction.

On Monday we have already seen the stock market go down over 300 points before making a little bit of a comeback towards the end of the day. More worries from Europe and an impasse from the 12 member Congress Super Committee debating the U.S. debt ceiling was responsible today for the down day. But because of the low trading volume, it was probably a worse day for the Dow than it would have been had it not been a big holiday week.

Buying stocks when volume is low means you have to be prepared to see the market go up or down more than it might during other weeks. If you are an investor buying stocks for the long haul, it probably won't matter if you pay a bit more or a bit less (depending on whether your stock goes up or down) for your stocks. Just be warned that the prices of the stock(s) you are interested in might be moving more than usual just because of the low volume.