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High Priced Stocks Vs Low Priced Stocks - That Is the Question

High Priced Stocks Vs Low Priced Stocks

Many traders feel the need to trade low dollar stocks because they can buy more shares which they feel will enable them to get in a position, take the run and get out fast with a quick buck. Sure, this is possible HOWEVER, it is not something any trader should even think about banking on. Unless you run into a low priced stock that just came out with fabulous news, you better be prepared to lose your a$$ because you and hundreds or thousands of other traders are after the same thing. You better be damn fast and an expert trader to make any type of success at trading low priced stocks. I’m talking stocks below $10. It doesn’t take a rocket scientist to do the math – you can certainly buy more shares of a stock priced below ten bucks than anything priced higher but again, you aren’t alone which means when you try to exit your position, there will be quite a crowd clogging the door. Hopefully, you won’t be one of the traders who falls and ends up at the bottom of the stampede – stuck with a new investment you definitely had not been prepared to hold a position in.

Trading lower priced stocks means you better have a very tight stop loss and depending upon the number of shares you are trading on that low priced stock, you have little room to breathe – if any at all. The key to successful trading is not trading thousands or tens of thousands of shares and aiming for a nickel, dime or quarter gain. Why? The odds are stacked against you with not only the number of other traders trying to make a few bucks on the low dollar stock but also, the speed at which a low dollar stock can turn against you. When a low dollar stock turns on you, be prepared to either take a huge loss or become a new investor of a company you could care less about. Rarely do you see successful day traders involved in trading low priced stocks any more. Yes, you will see newbie day traders who have no idea what they are getting themselves into – move into and out of the market in a month or a few, after they blew all their trading capital trying to day trade low dollar stocks.

Day Traders rarely care or are even concerned about what a company actually does. The wise and seasoned day trader participating in a professional day trading room will see a momentum stock and jump on the wagon for the ride HOWEVER; professional day traders only make these moves with a pre-determined stop loss and exercise very strict trade management. Professional day traders who intend to make a living day trading will focus on stocks over ten bucks because they probably have been there and done that and now, know better to stay away.

Trading stocks over ten bucks automatically grants a day trader the ability to widen their stop because they are trading fewer shares than what they would be trading if the stock was below ten bucks. Some traders favor stocks priced over $50 or over $100 (medium priced stocks) because these stocks generally have the ability, market cooperating, to move in points/dollars. The advantage of trading higher priced stocks is that with a wider stop, the trader even has the opportunity to walk their trade out, set trailing stops and in return, increase their profit potential per trade. Institutional traders prefer higher priced stocks because it allows them more opportunity to trade larger blocks of shares since the interest is not only there from the active day trader but also, investors.

High priced stocks over $200 - $300 can reap nice financial benefits for day traders since again, they generally move in points/dollars and not pennies or cents. Increased interest is evident in high priced stocks from institutional traders, investors and of course the active day trader. Experienced traders are familiar with trading activity found when trading these stocks due to their ability to move with the market from the interest and attention these companies receive across the board. High priced stocks move for a reason and generally not due to a rumor. Rumor moves on any stock will result in more traders getting slammed with huge losses or stuck positions leaving a trader as an unwanted investor since they failed to practice solid trade management by taking their stop loss, when it hit.

Serious day traders should consider demo-trading higher priced stocks to develop a trading strategy for this method of trading. While demo-trading a day trader should use a variety of stocks that are traded by a website providing premium services for online trading. This method of training allows the day trader the opportunity to test various stocks - volatile stocks, high volume moving stocks, low volume moving stocks, stocks in various sectors and so on. When day traders create a basket of medium to high priced stocks they monitor on a regular basis, they also open up extensive lists of stocks, in the same sectors that tend to move in sympathy, merely increasing the list of potential stocks to trade on a regular basis.

Over time, day traders have the ability of becoming experts day trading online but remember, it will take time. The time a trader takes to demo-trade enables them to take the time they need to develop trading methods suitable for their own needs.

April 2011


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