[Stephen A is an active SpikeTrade Member, one of only two who received a diploma for excellent picks in Q2-2009. He sent us this contribution today – AE]
I encountered a situation yesterday morning that I’d read about but never really experienced, that of a big price move resulting from a volume burst in a very-low-volume stock. I thought it was pretty interesting and might be of value to other new traders.
Steve A
My SpikeTrade pick for the week is NSTC, has been a relatively low-volume stock, about which I said in my pick sheet comments that watching NSTC was “like watching paint dry”. Although most of the time that’s been true, on Tuesday morning August 18 I changed my opinion.
We’ve all read that it’s prudent to be wary of low-volume stocks, as price can be moved quickly by a sudden burst of traded shares. As a recent arrival to the world of trading, I hadn’t actually experienced this, at least to the degree that I did last Tuesday.
The table shows the minute-by-minute action in NSTC from the open Tue Aug 18 7:30 am through 8:23 am MDT. During this period only a few hundred shares were bought or sold in any given minute, and many minutes went by with no trading at all. From 8:07 to 8:08 100 shares were traded, and from 8:08 to 8:09 another 100 shares were traded. A minute went by, and suddenly between 8:10 and 8:12, a two-minute span, volume rocketed to 54,690 shares.
What happened to price?
The chart shows, bar by bar, the languid activity in NSTC leading up to Bar 21. Prior to this bar there were few buyers and sellers; then suddenly there was a preponderance of buyers, and price took off. The stock rallied from about $5.35 to about $5.75 within two minutes, a rise of 7.5%, on a volume of 54,690 shares!
I had gotten pretty bored watching the inaction on the screen, and at about Bar 19 I went to the kitchen to get a cup of coffee. I returned during Bar 22 and uttered an expletive. It is always a shock when a trading truism that begins as mere words in a book becomes a screaming reality. I hadn’t yet entered an order, since the behavior of the market was seeming (to me) so unpredictable and I didn’t want to get knocked about, and so I wasn’t able to reap the windfall.
So, the lessons that I took away from this are:
- Don’t take sleepy stocks for granted
- Big price movements on low volume really happen
- If I had truly wanted to enter, I should have been ready
- Because I really didn’t want to enter into what I thought would be a risky trade, I shouldn’t brood over the missed opportunity, or begrudge the stock its spectacular jump.
Best wishes,
Steve A