Volatile Stocks - Secret to Quick Gains

If you seek big returns over short period of times, it is crucial you locate stocks with high volatility. Volatile stocks have the ability to make double digit gains (or losses) within a day or two. Since the reward is high, you must be willing to accept a high degree of risk.

The secret to finding volatile stocks to exploit comes in knowing what to look for. Since stock prices are driven by nothing more than simple supply and demand, it would only make sense to look at stocks with a high demand and a low supply of shares outstanding.

Stocks with a small amount of outstanding shares (shares available to the public) can usually be found amongst lower priced stocks. If you use a stock screener, search amongst those stocks priced $2 to $10. Look for stocks with a daily trading volume of 50,000 to 200,000 shares.

Now that you have your list of stocks that have a low supply of shares available for purchase, all you need do next is look for stocks on this list where there is now a high demand. One of those stocks on the list was KGN, a mining company. For the last two weeks in October 2009 the stock price was 4.60. Average trading volume was 150,000 shares a day.

At the time gold was soaring and demand for gold and anything related to it is picking up. KGN jumped 15% in the first week of November and by the end of the month was up 46%.

Another signal I use to alert me to a volatile stock that investors are buying, is the daily percentage gain. If a stock can gain 10% or more in a day, I want to look at it closer.

Ask yourself these questions:

1. Why did it make a big gain?
2. Will the momentum last a couple days more so you can cash in?

Look at the stock’s chart and make sure it has not rallied too much recently. Always remember, “What goes up must come down”. If the stock has gained 50% in the last week, you may want to pass. It’s probably made its gains already and profit taking will kick in soon.

On the other hand, if the jump is only the first or second such recent jump, it may be at the beginning of a rally that you might want to get in on.

To discover more tips, tricks, and techniques for finding stocks ready to explode, get my free report by clicking here: “How To Trade Volatile Stocks”

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Why Does a Company Sell Stock?

As you know, a share of a stock represents the ownership of that company. But why would the founders of a company want to share the profits when they could potentially keep it all for themselves? The answer to this question is that every company needs money. It is very costly to start up a major business and there are limited ways in which a company can raise money. They can either borrow money from someone else (usually the bank) or they can sell part of the company to individuals which is known as issuing stock. This is highly beneficial to the company because they don’t have to pay back anyone or make interest payments along the way.

The only downside to the company is that in order to raise this money they are selling ownership of the company and its profits. The hope that the stock holders have is that someday their shares will be worth more than what they bought them for. There is a risk when buying stock because there is no guarantee that you will make money off of your investment. When a private company issues stock for the first time it is known as an Initial Public Offering (IPO). Any company that sells stock is then known as a corporation.

Not all companies sell stock. You won’t be able to find the local restaurant in your small town trading on the NASQAD anytime soon. Companies do this for a number of reasons. An example is that the company just doesn’t need any extra money to start-up. The owner of the local restaurant is able to finance all the start-up costs - staff, building rent, utilities, bills, etc. - all by himself. However, if he wanted to expand his restaurant into a major franchise - i.e. McDonald’s - then the owner would need a lot of money and would have to convince people to buy the stock by proving to the public that his business will be successful. This is very important because no one will invest in a company deemed to fail.

We implement the complexities of the stock market and put them into terms that the average individual can connect with and understand. If you enjoyed this article and would like to learn more about stock related topics then please visit: http://www.erikandjeff.com

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