Limit Orders

Rule:

Always use Limit Orders when buying or selling stocks. Hitting the buy and sell button is asking for trouble.

If you are a small trader, like most of us, you may see wild swings in your buy or sell prices when compared to the market price if you don’t use the limit option. Brokerages may fix you up with a buyer or seller with an unfavorable price if you aren’t careful.

A Limit Order should only be used while you are in the market during the trading day. If you let the order stand indefinitely or for mutiple days to try to catch some upside or protect your downside, you may regret it the next time a Flash Crash occurs. You should read up on the Flash Crash, you WILL see them again and using the Limit Order, for a short duration, is your only protection.

More info on the Flash Crash can be found here.

Hated Stocks

Rule:

Stocks under $10 are usually considered hated stocks. They are hated, or rather, ignored by the large investment firms. Large investment firms have some very specific rules about what stocks they can invest in. One of the big rules for these firms is not to invest in stocks with purchase prices under $10.

Who cares, right? You should. When these large investment firms take a position in a stock, they are buying tens of thousands or even hundreds of thousands of shares. It can take several days for these firms to take their desired position and this can drive the price higher and higher*.  A small, or broken company with a price of under $10 won’t typically move unless there is a catalyst of some kind**.

Try to buy stocks that are over $10 in price to take advantage of the upside that a purchase from a large buyer would deliver.

* Conversely, it is good to know that it can take several days for a large firm to liquidate a position when there is signs of trouble, allowing you to beat them out of the position.

** One way around this is for the company to do a reverse stock split. Watch out for these companies and most of the time, it is good to stay away.