Rule #1: Never own a stock that's not worth owning.
I like JUHL because is in a growth industry and manages its debt well.
Rule #2: Only trade what you do not need soon.
Because it may not be easy to get a buyer when you need one, this strategy is for money that you will not need any time soon (within the year). While this makes low volume stock less attractive, that is precisely why we get to profit where others take a pass.
Rule #3: Know the history of a stock.
Low volume stock develop trading patterns over months and years. Check out where the low and the highs are for the last 6 months. Look for ping pong pattern bouncing between these buy and sell points. These patters develop as the price bounces between the bid and ask price. Ride the spread, and patiently wait for those periods of increased activity. In the case of JUHL, the price has been bouncing between 1.82 and 2.00 for nearly a year. That is a 9% gain every time you are able to complete the trade.
Wednesday, December 23, 2009
Why trade low volume stocks?
First, let me say that trading a stock with low volume is not a complete investment strategy. It is a strategy that should be used in combination with a comprehensive approach to long term growth.
But it can be very profitable. This blog will tell you how to spot investment opportunities and profit from forgotten corners of the stock market.
Spotting the Trend
Technical traders like to read charts like tea leaves. Spotting low volume trends, however, defies some of the conventional thinking about technical analysis.
For one, since low volume stocks do not trade as often or as quickly, longer term trends are more helpful than shorter term trends. For this reason, when I begin my analysis, I begin with a 6 month view and run a 200 day moving average through my chart.
Low volume stocks tend to hover around this moving average for months on end. The key to a profitable low volume stock is one that fluctuates around this moving average with a large enough swing that one can buy low and sell high (or short the stock accordingly).
Notice that low volume stocks have a huge spread, so patience is key. Sometimes an order will have to be open a long time to be completed, but every low volume stock goes through periods of higher volumes. Cashing in and out during those periods makes the patience pay.
But it can be very profitable. This blog will tell you how to spot investment opportunities and profit from forgotten corners of the stock market.
Spotting the Trend
Technical traders like to read charts like tea leaves. Spotting low volume trends, however, defies some of the conventional thinking about technical analysis.
For one, since low volume stocks do not trade as often or as quickly, longer term trends are more helpful than shorter term trends. For this reason, when I begin my analysis, I begin with a 6 month view and run a 200 day moving average through my chart.
Low volume stocks tend to hover around this moving average for months on end. The key to a profitable low volume stock is one that fluctuates around this moving average with a large enough swing that one can buy low and sell high (or short the stock accordingly).
Notice that low volume stocks have a huge spread, so patience is key. Sometimes an order will have to be open a long time to be completed, but every low volume stock goes through periods of higher volumes. Cashing in and out during those periods makes the patience pay.
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