5. Trade Only
Liquid Stocks
Look at the column called Lots Done in your market report. This is the amount of stocks that
were traded on the day. If you multiply this by the price of the stock, you can see how much money
actually changed hands on that day. If this amount is high, then the stock is very liquid, meaning
it is easy to buy and more importantly, easy to sell. The last thing you want once you've bought a
stock is to be stuck with it because you can't find a buyer.
For example, if a company has traded 100,000 stocks today and the closing price was RM2.42, we
can estimate that RM242,000 worth of that stock changed hands today.
For example:
Innovics' last price was RM 0.30 and Lots Done were 1000. This means that an average of RM
3,000 worth of stock changed hands today. In other words, Innovics is only trading an average of
RM3,000 of shares each day.
Now, you own RM10,000 worth of Innovonics and you want to sell. If you enter your sell order on
the market, you will inject 3 days worth of turnover onto the market. There will not be enough
buyers for you to immediately sell the stock at your chosen exit price.
To ensure you invest in liquid shares, only trade stocks that show a daily turnover of at least
ten times what you are planning to invest. If you are investing RM10,000 in a stock, look for an
average daily turnover minimum of RM 100,000.
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