Ok, back from the gym. Was thinking about relative strength while I was there, which seemed appropriate.
Worked out with my brother in law. He lifts competitively. He weighs almost 100 pounds more than me. So how much more does he need to lift than me to have more "relative strength"? Well of course it is really not an issue in real life, because no matter how you look at it, he is JUST MUCH STRONGER. Yeah, in theory I could lift less weight than him, but be relatively stronger pound for pound. (which I assure you is not close to the case).
But for the sake of argument, lets say that I could outlift him pound for pound. I am the $10 stock that is up 50 cents. He is the hundred dollar stock and is up only $4. Which is the better stock to trade?
Here is a case in which I would say even though the $10 stock is up on a greater percentage basis, I would rather trade the $100 dollar stock. Here is my reasoning:
It is not my style to scalp. I am not that kind of trader. So things being as they really are, the $10 stock is going to move in pennies. The $100 stock in lets say eights (to use a now archaic term). What is my upside/downside risk with these stocks? I know my commission is going to be lets say 2 cents round trip on either trade. The cheap stock I am looking for a 20% pullback. So now it goes from being up 50 cents to only 40 cents. A ten cent move. I get in, and it goes back to it's high. I am out with a net profit of 8 cents.
The 100 dollar stock I buy on the same 20% dip. I buy it when it is up 3.20. I get lucky and get out when it returns to it's high. I make 78 cents. Instead of 8 cents. Of course my losses will be greater too trading this way. But what I like about bigger swings is that I have more "wiggle room". Now the 100 dollar stock is a rare thing now for sure. And this is just an example. But I do tend to avoid the stocks that are under 20. I used to love to trade CSCO and SUNW. Now I can't at all. How do you trade a stock that is moving in 1/10 of 1 cent increments? What used to be an eight spread on a stock now has 125 possible different price changes where it used to be one. decimalization has made trading much harder.
I don't know why I wrote all this. It made more sense while I was doing bench presses. But bottom line, I avoid the cheaper stocks. I find them too hard to time. You have to be almost perfect. I don't know anyone who is perfect in their timing or anything else (except my wife of course).
Anyway, I now get to use my new signature courtesy of the ever talented, gracious and generous PUBLIAS!
PS: I know this is probably my most boring post to date. I will try and do better next time. No one bats 1000.
Peace to All,
RS7
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