Grab Trading Opportunities Big or Small
It’s easy to fall into the rut of trading the same size for every stock across the board, but on occasion you’ll inevitably run across a stock that fits a lot of your criteria but isn’t quite ideal. That’s when the dilemma arises: Do you ignore it or take the trade?
Volume is a key ingredient to me when I’m considering trades. Not only do I want the stock to be reflecting some level of interest (activity), but I also want to know that I can execute my orders effectively and without too much slippage. Strong volume also tends to mean narrower bid/ask spreads, which means a more competitive market. Naturally, volume is the next thing I look at after the chart. When it seems too light for a trade, my first inclination is to pass on the stock and move on to the next, but that isn’t the best or only option I have.
So in the case of the light-volume-but-bullish-stock, why not pick up a few shares if the chart is good and simply take a smaller position? If it pays off and the chart pattern produces the move you’re expecting, the profits may be slightly smaller but it’s still money in your pocket!
RIMG is a stock I’m currently eyeing which has a nice bullish pattern but trades much lighter volume than I generally prefer. The pullback of the past two weeks off the recent high has created a large bull pennant pattern, and a push up through the upper trend line will confirm the pattern and could free up this stock to head north.
(Click for full-size image, courtesy of TeleChart)
Instead of passing on the trade entirely due to the light volume, simply taking a smaller position in the trade if it goes would still allow room for some profits. Perhaps that will translate into a smaller winner than another trade where I may have a larger position, but as a trader I’m all about seizing opportunities whether large or small.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Technorati Tags: Stock Market, Day Trading, Stock Trading, Investing, Swing Trading
[…] But I must admit that “the market” does impact my trading. The most notable influence on my trading is whether a trend is underway or not. The presence or lack of a trend will impact my directional bias, my timeframe, and even my activity levels. Volatility is another piece of the puzzle, as too much of it will curb my aggression and not enough of it may remove me from my screen altogether. Volume is important (as I recently noted), because I need quality executions and enough liquidity to get into or out of trades without added slippage. […]