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Strategies & Market Trends : Your Worst Trading Enemy.. You
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To: Fun-da-Mental#1 who wrote (58)1/17/2001 2:16:17 PM
From: shawnwolff  Read Replies (1) of 223
 
Re: Low Volume

Along those same lines... another reason I personally don't invest in small stocks (although I admire traders who successfully do), and why I find that many move erratically, is that many of them tend to have lower average daily volume. People, I think, often get so wrapped up in "how" stocks tend to move (charts, moving averages, etc)that they neglect to think about "why" stocks move. Stocks move because people move them. It takes interest in a stock to make it move. It takes consistent interest to make a stock move consistently. Lack of interest(low volume)can result in sudden movements as interest comes and goes more erratically, resulting in spikes and quick falls.

I find that it becomes very difficult to predict behaviors of stocks with inconsistent volume. Longer term trends depend on consistency. If a stock gets news, or any other reason for sudden interest, it attracts players that ordinarily have no interest in that stock. That tosses any long term trend out the window. And small stocks are again, daytrader prey.

Unless they have consistent volume, I tend to stick with short-term trades on small stocks with increased volume and fresh momentum. In those cases I keep very tight stops.

- Shawn
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