Newbie Do's & Don'ts

[Mariner*]

newbie don't... "Frontloading" .

The term "Frontloading" always confused me. This inhouse poster explained it quite well I thought.

written by: DCschmoeka

This is a coined term that means many different things to many different people, so I will explain what it means to me...once again these are my opinions...

Front loading comes in many forms...
What the term refers to when mentioned here is a stock that was largely accumulated in big quantities at very depressed levels...often times this may mean that a stock was highly cycled at its low, which means that many of those who held from higher levels have sold for a loss, leaving the new owners of the stock with a very low cost average...the worst is when a stock stays depressed for a long amount of time while individuals build large positions for themselves at the low level...

What does this mean? When deciding how much potential a stock has for upward movement, it is helpful to pay attention to the Price by Volume indicator, which you will see on every stockcharts.com chart that I post. The Price by Volume indicator will give you a good idea of the cost avg of the current shareholders. The last thing you want to see is very high volume while at depressed levels. This means that when you come across one of these front loaded stocks that may start to run, the natural laws of profit taking come into effect for everyone all at once, and the stock is shot down before it ever had a chance for a real run.

In another potential example, a group of traders may quietly load up on a stock because they know that news is coming. When the news they were waiting for comes, guess what happens? The stock tanks because they sell into the news and new buyers cannot even move the stock upwards.

One must also realize that there are stock promoters out there with large comped positions who are ready, willing, and able to dump on your head...Many of these promoters hype these positions on message boards to oblivious eyes and ears(yes, even on IHUB)...The charts are often horrendous on the stocks they pump(while not always), yet they continue to blow the trumpets of glory and good news to come. Often times these people are indeed dialed in and do know about news ahead of time(which often winds up being virtually irregardless to any significant stock move) A frontloader, in the true sense of the word, is one who sells these free or very cheap shares into the market while continuing to attempt to pump up the price of the stock to potential buyers. This particular person is scum IMO and is often slicker than a used car salesman.

How can I recognize a front loaded stock? First off you can't always...but many times you can. I think the Price by Volume indicator is a great tool for this. Also, it is very helpful IMO to scan messageboards to see if there were a large amount of posts regarding a stock while it was at its depressed levels. If I see that big players, or many posters have been hyping a stock for a long time while it was very low, the VERY first thing I do is put on my sneakers and run like hell! Often times people get conned into buying these stocks and then they get trapped for long periods of time and cannot wait to finally get out of the stock with a profit.

I hope this adds a little clarity to this subject. As it is a coined term it is obviously open to some personal interpretation. These are my personal opinions only deduced from my observations and experience.