If You Like Low-Priced Stocks, Read This Article
The
market avoided a selloff this moved, wiggled around most of the day, and
finished very close to breakeven. Nothing new to report here. The
best opportunities still appear to be on the long side, so that is where my
focus will remain.
Last week I discussed keeping
an eye on low-priced stocks. Should the market begin a true march northward,
some real opportunities could come from this group. Later this week, I will
discuss some guidelines for trading low-priced stocks. Today I would like to
show you an example of the explosiveness, volatility, and potential danger in
trading low priced stocks.
Below is a chart of IIJI a from
May 26. As you can see it had been basing for a while, but some strong buying
interest had come in recently.
The next day it broke out big.Â
If you caught the breakout, you were in for a wild ride. If you missed it, you
may have considered purchasing some shares on the 1st pullback. It
took about 2 weeks for that 1st pullback to complete. The
opportunity to purchase some would had been around $10/share, which was 100% the
initial breakout point a couple of weeks before. Not exactly a low-risk
scenario pullback. If you took it though, you would have felt like a genius 2
days later.
Unfortunately that’s when the
next pullback began. On 6/16, IIJI had pulled back for 3 days on lighter
volume. It was beginning to approach the potential “buypoint†of $10, but was
still holding above that level.
By the open the next morning
the trade would have been 20% underwater.
Low-priced stocks can be
extremely volatile. You’re not likely see a MSFT, MMM, or KO chart that looks
like this, but it isn’t that uncommon for some small company, low priced stock
to go on a wild ride. On Wednesday I’ll discuss some thoughts on how to reduce
your risk when trading these stocks. Before I did that I wanted to make sure
you understood the potential danger.
Good trading,
Rob
P.S.
Click here for the Hanna ETF Money Flow System.
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