$TSUNAMI WAVE

[Bucks4Buckeyes]

From my most recent blog page.

The Best Bang For Your Buck: Trading vs. Investing
By Bucks4Buckeyes

Chalk it up to my ‘penny-pinching’ nature, a desire to excel or my background of extensive swing trading on the Big Boards: but I am often perplexed at the phrase found in penny stock chat rooms, “long and strong.” I am not a day trader; not that it is wrong, but I have a full-time job and often, due to the nature of my employment, there is always the potential that when the next opening bell rings, I may not find myself at a computer for the entire day. So, I am usually seeking for one-week, one-month, one-quarter or one-year penny plays.

Thus the “long” label is often attached to my alias. But I have observed a curious phenomenon develop among many “longs” who hold penny stocks; they act like investors and before you know it, the term “long” becomes synonomous with “inactive.” I think that is a very dangerous for any individual to be, inactive, especially when it involves your money.

Many self-proclaimed “longs” almost sneer at the term “trader,” a label I proudly wear. To me, it makes fiscal sense to trade – even in a stock in which you consider a long-term hold. Allow me to explain.

The chart below is a recent chart for a stock I enjoy both trading and investing, Rexx Energy. Even the most inexperienced chartist can detect the strong upswing from mid-June to mid-September. Let’s say you chose to invest in REXX and decided on your entry point at the end of June and you bought $1,000 worth of shares: 966 shares at $10.35. As the stock went through its normal ups and downs you finally decided to sell on September 20 for $14.70 per share; you would have turned walked away with close to $1,411 or a 41.1% profit. Not a bad “investment” for one quarter, if you ask me.

However, what if you “traded” instead of “invested” in that same stock during the same time frame? I tried to select the most simple scenario of trading properly – not simply looking backward and charting the highest highs and the lowest lows – because rarely even the most experienced swing trader can hit those very consistently. I chose median buy and sell points which held steady through days – where even a novice, who chose to follow the philosophy to “trade” instead of “invest” could hit those points very easily.

If you took that same $1,000 and bought 96 shares on the same day, June 29 and sold sometime around July 24 at $11.75, you would have around $1,128. If you spent that $1,128 around August 1 you could have bought 100 shares at $11.20. Selling those 100 shares around August 3 at $12.50, you could make around $1,250. Again, take that $1,250 and buy 119 shares at $10.50 around August 8. Anyone could then sell those 119 shares for at least $12.50 around August 15 for $1,511. Finally, if you were to take that $1,511 around August 22 and buy 137 shares at $11.00 – you could sell those 137 shares around September 20 at $14.70 for $2,014 – a 101.4% gain!

The same stock, the same dates, the same amount of money – but two radically different results. A decent gain of $411 from your $1,000 resulted when using the “investing” strategy. A much larger $1,014 gain from your original $1,000 resulted when using the “trading” strategy. My actual results were much greater on this stock (169%) because I was much more fortunate – I only outlined a very easy strategy where there were multiple buying and selling opportunities.

I know, the excuse is that the “longs” really believe in the stock. Then why wouldn’t you want even more shares for the same amount of investment? Of course, if the stock is illiquid, there isn’t much one can do – or if it is very liquid, you may miss some entry or exit points. However, even if you do…how often have you seen a penny stock go so far, so fast that you could never get in it again at the desired price? It is very rare indeed.

Consider the other benefits of the trading vs. investing philosophy. Trading causes you to be more active in your stock and not allow yourself to become complacent. It provides further opportunity for profit-taking and the ability to ride “free shares” – thus removing the anxiety of losing your investment. It allows you to be in a position to prepare more capably for news or current events and how it will affect your stock price.

Now, I am not necessarily saying the best thing to do is to “flip” penny stocks, for sometimes that can cause great damage to fragile penny stocks. I am encouraging each of you to become a trader, not merely an investor. You’ll get more bang for your buck that way.

Just My Honest, Open Opinion

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All The Best