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 [1] 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 [2] 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 [3] pattern, and a push up through the upper trend line will confirm the pattern and could free up this stock to head north.
[4]
(Click for full-size image, courtesy of TeleChart [5])
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 [6]
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]