How To Buy A Hot Forex Stock
By Ultimate Trading
Theres More Than One Way To Trade A Popular Forex Stock
Even traders want to be trendy. Many traders will trade their
stock because of public opinion, not because the trade itself
makes sense. When a particular forex stock seems popular, they rush
in so they dont feel theyve missed an opportunity. As a result
they end up buying at a price point where the trade cant possibly
work out. You should always avoid the emotion of the hot forex
Heres an example of what not to do: Let's say you've been following
a particular forex stock, which is in a hot sector, and it just
announced a stock split. The stock is now at $18, and you calculate
it could get to $25 or more by the time of the split. The market is
currently bullish, and it looks like a great trade.
The problem is that the forex stock has been rising for the past
four days. It started at $12, but you didn't notice it until it hit
$18, and it's still rising. The stock split is a month away, and you
know it's likely to fall in price somewhat between now and the
split. Still, everyone is talking about this forex stock. What if it
continues to rise and becomes the next blockbuster? You become
afraid that if you dont make a trade youll miss a great
opportunity. (And besides, you want to be able to tell people that
you hold a position in this forex stock, because it makes you seem
smart.) So you buy 1,000 shares at $18.50.
During the next two weeks, the stock goes to $19, then levels off,
loses momentum, and drifts down to $17. Then a couple of leading
NASDAQ companies give earnings warnings, the market drops, and the
forex stock slides to $15, triggering the stop you'd set at $16 on
half your holdings. The forex stock trades in that range for a week,
and then begins to rise slightly going into the split. Your plan is
to sell a day or two after the split. The forex stock rises a little
beyond $20.50 by the second day after the split, and then the volume
dries up and you sell it for a $2 profit. But since you stopped out
of half your shares at $16, you lost $2.50 per share on that half,
with a net loss of $.50 on 500 shares. What went wrong?
What went wrong was that you didn't let the forex stock come to you.
Instead, you chased it as its price rose, knowing perfectly well
that, following the
stock split trend, it would probably pull back before running up
again. It was more likely to pull back than it was to continue on an
uninterrupted run to $25, and you knew that if you bought at $18 or
higher you were probably paying too much. You ignored what you knew
was more likely in favour of what might happen.
You should have given the forex stock a chance to come to you, at a
price you felt was reasonable. If the forex stock had pulled a
surprise and never gotten down to where you thought it would, that
would be okay. There were many other stocks to trade, and some of
them would have come down to your price. You didn't have to own this
particular forex stock.
What was the right way to play this particular scenario? When the
market is bullish, it's very likely for a forex stock to rise when a
split is announced, drift down after a few days' rally, and then
begin to rise again a week or so before the split. If that's the
trend and there's no solid reason to think the forex stock will rise
immediately, wait a few days for the forex stock to drift down and
stabilize before buying it. If you had done so in this case, you
could have bought it at $16.50 and then sold it for $20.50 for a
$4.00 profit on the entire 1,000 shares.
If you had a solid reason to think the
stock might continue to rally, you could have bought half the
total number of shares you wanted at a price that might have turned
out to be too high, and waited for a lower price to buy the other
half. If it had turned out to be too high, it would only have
reduced your profit. (No stock goes up or down in a straight line.
Wait for a pullback before buying.)
There is a good way and a bad way to trade a hot forex stock. The
good way requires discipline and careful market evaluation. The bad
way is to trade from your feelings. As you can see from this
example, its always more profitable to trade the good way.
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