Question re: ability to get out of a share once the price has rallied?

[shyguy]

Someone told me to be careful about the liquidity of a share...

essentially stating that if you buy up big in a share you have to consider the factors regarding being able to sell...

im assuming the issue here is that if you buy a lot of shares and then it rallies up, are you going to be able to sell off all those shares to take your pretty profit...? ie. will there be enough demand to sell all of your position in that share...

could anyone please elaborate on this point and add in any other words of advice... im not really at the point where i am playing big bucks but am keen to understand the issues relating to playing with larger quantities and how that can directly affect yourself and the market...

note: i mostly watch penny shares... where large buys and sells can have a significant effect...

 

[tech/a]

Re: Question re ability to get out of a share once the price has rallied upwards...?

My minimum is $300k traded average over 14 days.
so thats all of the volume x share price over 14 days /14 must be >$300,000

 

[shyguy]

please elaborate...

im assuming there you are talking about the amount of money traded on that share... but like i was asking in my post isnt this all relative to the amount you are buying up... i mean if on average it was $300k and you bought $50k worth then couldnt you still potentially find yourself in trouble much easier as far as selling...?

as you may see i am a bit vague on this aspect...

 

[burglar]

Why would you be seeking an illiquid stock as home to $50k, ????

 

[Tanaka]

You can exit any trade, the point is will it be the price you want.

If you were entering in with $50k and the average volume is $300K over 14 days, you could place a sell order for the whole 50K and your order could potentially be making up roughly 17% of the action during that day. In this example if you sold ‘at market’ you would be eating up the buyers willing to pay higher prices but you would also be eating up the buyers willing to pay a lower price, this means that you would be getting a price much lower than what is quoted.

As you can see if you bought 300K in the about example you would be crazy to dump all shares on the same day as you could potentially alter the market severely, your order would be pushing the price down. If you did buy 300k you would be best to slowly sell chunks of it over several days as to not alter the price too severely.

 

[cudderbean]

Re: Question re ability to get out of a share once the price has rallied upwards...?

My minimum is $300k traded average over 14 days.
so thats all of the volume x share price over 14 days /14 must be >$300,000

Having been caught out a few times with illiquid stocks I now have these rules:
Never touch a company that ..

1. has not traded every single day for the last 10 days (i.e. no zero volume days)
2. has had more than 3 days out of last 20 days where the open high low close is the same price (i.e no interest days)
3. does not fill both sides of my webiress market depth screen (showing individual parcels) with buy and sell orders

As a result I reduce my master list for scanning to about 800 of the 2,000 plus listed companies. I update it twice a week... just a few minutes with Excel or Bullcharts.

Of course one can make money on any stock if one is clever or lucky enough. And I may miss out on some previously illiquid stock that comes with a rush of interest out of left field, but you can’t win em all, and possibly I’ll pick up such a company after its initial run and retracement when liquidity has improved.

Tech/A thanks for your liquidity filter.. it eliminates a few more off my scan list.



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