Penny Stocks. The reason is that we have found a much better return can be achieved by staying on one side of the market. It needs to be the right side, however, and most folks will trade as if we are in a perpetual bull market. By staying on the right side of the market, we are able to keep trading cost's down, limit the amount of risk at any given moment, and increase our winning percentage. Try to determine when the market may be on vacation even though it appears to be trading. This doesn't mean that trading will be boring, and prices can move all over the place with light trading. It's just important to know when these days are because heavy volume in any particular issue may be much more important than on a normal day. Do not think this means that we can't make any money, in fact it may be our time to shine. A lot of market makers assistants will carry heavier loads on slow days and this may be a distinct advantage for us. This does not mean that they are any less intelligent than their masters, it simply means that when the cat is away, the mice will play. They may be a little more aggressive and watch for just a few issues to get all of the attention. When markets are down, be careful of fake run-ups as market makers with plenty of shares in their cache will try to make some money. The market may have some more consolidating to do and the MM's will try to take advantage of trader's passion for a rebound. Evidence of this will be seen when no specific MM seems to be buying on the level two, but instead seem to be rotating around trying to create some momentum. Occasionally, these fake rallies can catch some shorts off guard and turn into a full fledged reversal. No matter how hard it seems try to act inversely to your emotions. Down markets should be an enjoyable time to pick bottoms as most investors turn their tails and run. Everyone that ever made a dime in the markets has bought when everyone else was selling. This can't be done blindly, however, use this time to be more selective. If you can't seem to turn your frown upside down then step back and do nothing. This will almost certainly be better than dumping all of your stocks and watching them rise back up as most investor do. This is one of Wall Streets only good sayings, buy when there's blood on the streets. Along with knowing your environment comes knowing what time of the year it is. Don't think that obvious seasonality has anything to do with the stock market, take a look at some ski resorts such as Vail and Intrawest. They have good quarters during the winter and stock prices reflect this. We are now looking for money to flow out of winter type stocks and into spring and summer related issues. On the OTC BB, seasonality can be a big factor because there is often little else to watch. We fell that now is the perfect time to buy WGFL as golfers begin to spend money. Another seasonal event that moves markets occurs right at the end or the beginning of a quarter, and we should see heavier than normal activity in the markets, especially the OTC BB. Professional investors will try to lock in gains if they haven't already and try and position themselves for a better second quarter. The over the counter bulletin board is where we find the heaviest proportion of retail day traders. Many of them may have trade minimums to meet for the quarter or month and will trade aimlessly just to save commissions for the next quarter. Many traders who are in a stock that has been profitable will go ahead and sell. Unfortunately Market Makers are way ahead of them and will most certainly lower their bids if they see this activity unfold. We tend to find the best bargains in this environment, the only thing to watch for is wide spreads. MM's will lower their bid's, but keep their asks high to take advantage of traders getting out and coming back in right away. Smart investors will have already gotten it done so MM's will have a hay-day with the poor procrastinators that are left. |
PSW Staff |
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