I figured out awhile ago that, when it comes to trading, it really helps to know exactly what you’re looking for in the market — and it also helps to know when you’ve found it.
That said, I like trading low priced stocks. And when it comes to low priced stocks, there’s only ONE thing I’m looking for — an UPSIDE EXPLOSION in price.
Some traders find low priced stocks too dangerous. I say good for them. It really helps to know what you are and are not comfortable in the market.
Me, I mitigate the risk of low priced stocks with position size and endless testing, trials, journaling, research, etc.
One of things I frequently do is review crazy moves in low priced stocks even if I missed those moves. One such price explosion came recently in $SBSA — one of the biggest downside fakeouts I’ve seen in a long time.
Check out this move:
The fakeout begins with a massive volume to the downside as price breaches the $1 level.
After a few days price refuses to make lower lows.
Refusing to make new lows, price skyrockets back above the breakdown level.
Is it done here? Hardly…
After posting a 39% move the dday before SBSA prints a 100% move the next day.
If you’ve ever been involved in a move like this you know what a rush it is.
And it’s still not done. After consolidaing around the 50 MA for a month or so SBSA begins a second leg up.
And look at that.
From $1 to over $7 in a little over a couple months.
That is the real reason why I look for low priced stocks that have the potential for explosive moves. They are worth the time and the effort.
Imagine just catching one of these moves per year.
Even if you have to sit through many -5%, -10% or -15% losses, the effect on your bottom line is amazing.