Characteristics of cheap stocks vs expensive stocks

Discussion in 'Trading' started by AshanD, Mar 1, 2006.

  1. AshanD


    As I began paper trading I limited my universe to stocks in the $10-30 area, but after thinking about this today I don't know why I did it. I was thinking along the lines of "well at $60 I can buy twice as many $30 stocks or 4 times the amount of $15 stocks" Same difference.

    Having realized this I want to know if there are other characteretics that stocks within certain price ranges have. Why, for example, do people avoid really cheap stocks (under $5 or $10) if all stocks act the same regardless of their price range? Any comments are appreciated.
  2. I'd believe that cheapers stocks can move very quickly on a lot of selling or buying. I don't know exactly how it works, but those stocks can make moves from news.

    I really don't think there is that much risk for day-traders as you are monitoring the positions. But for investors/swing traders I think it could be risky.

    But for day-traders I know a ton of people who trade stocks in the 3 - 5 dollar range. For example, check out Red Ink Inc on the 2006 P&L, he is a great example.
  3. AshanD


    I am actually a swing trader (albeit on a relatively short timeframe)
  4. pbw


    The more a stocks costs, you would need more capital to buy more shares. With lower cost stocks, you need less capital --

    How do you make money on expensive stocks if you have low captial and are just starting out?

    Eg -- you have $5000 in your account -

    you buy a stock for $30 -- you spend say $2000 and get 66 shares -- that stock would have to appreciate to a minimun of $3 --just to make $198 --minus the commission.

    For a $30 stock to hit $33 -- is a major move and not easy to find --and may also take a number of weeks or months to do.

    Whereas if you buy a cheaper stock $3 -- it can move to $3.30 more easier and often in less time.

    Anyone help me figure out this basic flaw in thinking --

    Most investors dread buying stocks less than $5 ---why...

    comments appreciated..
  5. ElCubano


    same shit different price...outcome is the same on both will make $199.00..and depending on what type of stock is as easy to go from 30-33 as it is to go from 3-3.30...
  6. kut2k2


    It's not price, it's volume.

    Cheap stocks tend to be low-volume stocks, and low-volume stocks are easily manipulated by floor traders, etc. I stay away from stocks with average daily volumes less than 100,000 shares, regardless of price.

  7. mcelitetrader

    mcelitetrader ET Sponsor

    I have to disagree about share price being dictated by volume......Shares such as LU or NT carry huge volume but are both under 5 bucks.

    Here is an example ......have a look at 2 stocks from today Feb 6th

    Newmont mining.....vs Kinross Gold

    NEM vs. KGC from 10:30 - 12:30.

    NEM 52 dollar stock move 2.5 dollars today on the gold was beautiful ~5%

    KGC a 10 dollar stock went 50 cents on the same move....~5%

    This accepts that the strength of stocks is todays gold trading the move in gold happened suddenly and both moved as gold moved so assume the correction was based on gold and the moves should then have been somewhat similar. Based on percent they were (5%). the correlation on these stocks is quite good

    So 100k buying power lets you buy 1900 shares NEM or 10 000 of KGC.....

    If you took nem short you made 4750...
    If you took kgc short you made 5000....

    So there you go in a nice example...No real difference...

    Now for the trading.....Obviously more can go wrong when you have more risk on the table....this is obvious.

    Low priced stocks are for the patient....I much prefer to take smaller share lots and ride massive runs on higher priced stocks....I find the levels are easier to read on more liquid stocks that are running.

    I have traded with NT and LU traders and they do very well....however that style of trading does not suit my trading style..I have been just assaulted when I attempt to trade these low priced stocks. This is my style....The best is to find what suits your temperament and trade that.

    Dont give up on high price stocks because of their price. The advice on trading stocks with volume is the best that is out there. Ensure that you can exit or enter when YOU want ....not when the market says you can.

    Yours in trading...
  8. Personally I love stocks that trade between $2 - $4. I try to start every trading day with one or two. I watch my scanners, then if the chart is right I pounce. Always on the long side. I average over 90% success with an extremely simple setup. Today was AVNX from $2.26 - $2.65 and COR from $2.72 - $3.15. Last week I caught FMTI, JDSU, FNSR, VLNC, GTE and GNBT. The key is that they have to have VOLUME + my setup.
  9. All stocks do not behave the same.

    Stocks within certain ranges do have some characterisitcs that you need to concern yourself with when trading in that price range. the characterisitcs within the range are more determined by the quality of the stock and the "float" of the stock.

    For doing the swing trading that you do, you wind up sort of specifying the character of stocks in several ways. You can make up this spec by price ranges. By doing this you then can apply your given method of swing trading appropriately within each price range.

    The best way to derive universes for making money does include both price and volume. Each for differing reasons.

    The stocks mentioned in the collective advice you have recieved fail to conform to any cogent selection criteria for any method as far as I can see from my limited view.

    Choosing criteria to choose a trading universe is a major step in becoming more effective and more efficient.
  10. =============
    Even the most liquid cheap stocks LU,NT,JDSU;
    easier to lose if lack discipline.

    Also watch for ''penny stocks ''living thier name;

    Ever wonder why junk cars sell so cheap;
    course my mechanic gladly bought a cheap car from me, real cheap,200k plus miles- not dollars

    Also watch for the elite message;
    ''no penny stocks'' William O Neil amplifies this also. :cool:
    #10     Mar 6, 2006