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Strategies & Market Trends : Cents and Sensibility - Kimberly and Friends' Consortium -- Ignore unavailable to you. Want to Upgrade?

To: al who wrote (47603)	12/17/1999 5:15:00 PM
From: swisstrader	Respond to of 108040

Al, good article and a must read, not just for newbees, but as a gentle reminder to all who trade and live and breath this stuff...not directed at Kim, TJ, A@P or any other self appointed guru that comes along, but one read of this and you'll think long and hard b4 you jump with both feet into the cesspool of penny P&D's...also love the bit about people who ask the next day "gee, anyone still in XYZ and the board goes silent"...again, stick to what you know, stick to quality: MSN Money Central The Momentum Trader Beware: Just as in Las Vegas, the odds are stacked against you. Many of the self-appointed gurus making trading-room calls have uncertain motives, and they may not themselves be doing what they're telling you to do. Indeed, it is suspected that many of the gurus hang out in secret chat rooms (or, um, talk by phone) before announcing their picks to the dozen or so big chat rooms. The plays have been pre-determined based on certain criteria. The stock is usually inexpensive with low average daily volume, and it has decent-looking charts showing strong support at the present price. Rumors about deals in hand are often surreptitiously self-placed at bulletin boards at Silicon Investor or elsewhere to set the scene. Let's say a stock whose symbol is "HYPE" is trading at $5 with average daily volume of 50,000. The guru group starts the day by buying 200 to 5,000 shares each. The price immediately starts lifting because of the multiple orders. The group then begins posting its play in various chat rooms, hoping newbies will buy just on the basis of its recommendation. If 500 people pick up on the concept and each take 100 shares, the volume could easily reach its daily average in just a couple of hours. That will set off alerts on thousands of more legitimate traders' screens. The guru posts on the channel at every uptick to create even more excitement. The stock is now at $7.50. At that point, the guru announces a target of $8.50. Some observers buy at $8, believing there is still 50 cents to be made. Meanwhile the guru and his gang are selling HYPE. When the stock hits $8.38, it begins to drop like a rock. Within seconds, it is at $6.50. Strategies The guru pats himself on the back, declaring to the room, "We hit the target." Few in the room realize that the guru and his gang have set sell limits well below that target. Some observers have scalped an eighth or quarter of a point, and the early buyers maybe made two or three points. But newbies are still holding at the high, rolling their eyes. They realize they have just become long-term investors, having paid $8 for a stock that in a few days will be back to $5. Tomorrow the newbies looking for counsel will post, "Is anyone still in HYPE?" And they'll get no answer. Here are some basic rules of the road for IRC chat rooms: Assume everyone in the chat room is lying, even though most are actually friendly and helpful. Be wary of rumors that are hard to check out. Beware of posters who repeat a stock idea over and over without any explanation. And don't ever think you're going to double your money in a week by hanging out in a chat room, even if someone else tells you that they did. Finding the right stocks at the right time is much harder (and more rewarding) than that. In sum, talk is cheap, but a misplaced bet on a low-priced, low-volume stock can cost you a small fortune. If you feel that you must trade on someone else's advice, you're much better off paying to subscribe to a legitimate online newsletter with a good public track record, such as the ones sold by Strategy Lab portfolio managers Tony Kolton, Bert Dohmen, Janet Brown or Terry Bedford.