This has been running through my head for the past couple of days. What is the optimum price range for a stock to flip, daytrade, or enter in a short term position?
The idea is behind why most newbies ask, "can I buy XYZ stock at .0001 and sell at .0002?" Moving from .0001 to .0002 is not only easy mathematically, but it is psychologically simple as well.
The problem with a stock at .0001 is you never know when it will move up, most likely the stock is diluting, or the volume required to move the stock never comes because the company is nothing.
So there has to be a medium in the broad range of prices of stocks that offers liquidity, applicability of chart reading, and efficiency at obtaining profits. For example, a hot new stock gets volume for a week and trades from .001 to .0014 over the week. Besides that 40% for a moving penny isn't much, but moving from .001 to .0011 to sell for a good 10% isn't difficult to ask either. Problem with this stock is again it may not typically have the volume needed.
On the other hand are stocks that might be slow to play. I don't mean slow in that they aren't worth trading because we're penny players and we carry out guts in a bag with us at all times. I mean they're slow in that they require a lot of price levels to go through until reasonable profits are met. For example, you buy a stock at 7.00. To make the same comparable 10% the stock has to progress through 70 cents.
Let's compare. For this discussion we'll assume a tight spread on the bid/asks of one tick. So to buy stock A at .001 and sell at .0011 the stock must move two ticks such that the ask bid/ask progresses from .0009X.001 to .0011X.0012.
Stock B, bought at 7.00 with a bid/ask of 6.99 X 7.00 and then sold with a bid/ask of 7.70 X 7.71 to make the same 10% compared to stock A must pass through, hypothetically, 71 possible price levels.
I know stocks skip certain levels if the demand is there, but the concept is still true. I think you'll have a much easier time finding stocks that trade from .001 to .0012 in only a few trades than a stock that trades from 7.00 to 7.71 in the same few trades.
Hell, this is why we play the pennies. The profit swings are easier.
My question to you, however, is within penny world what is the golden price level? Is it even a price level or the initial number starting the value? For example, is it more difficult for a stock to swing 10% when it's trading at .10 than .01 or .001 or .0001?
What must be considered is the ability to enter and exit the stock. Is the $volume there? So while we might want to find stocks trading at .10 versus .80, the .80 might have the volume, and thus the demand to move it more easily than one at .10.
There have to be some thoughts to all this. What do you all think? A lot of playing a trade is judging the risk/reward. I think this idea ties directly into it. The more price levels we must consider the more risk is being entered into the equation. More price levels allow for more possibile areas for the price to reverse and such. Let me know what you guys think. Matt
P.S. - I have a feeling stocks trading around .30-.50 are good candidates.
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