I would like to report my adventures trading low-volume stocks. I've been doing that for about a couple years now. It was easy at first but is getting more difficult now because of lower volatility. My system made 50% in 6 months of 2009 and 75% in 2010. I am up about 17% so far this year which is obviously really good but my account is still rather small so I have to shoot for high returns to be stop working full time 
I've had one loosing month so far in June 2010 when I dabbled in futures in the same account and lost <1%.
Anyhow, I am still tweaking my system and hopefully will see better results in the future. I also need to adapt as my account grows from the current 51K and I start hitting liquidity limits.
The idea behind my system is pretty simple. There is a lot of noise in low volume stocks so if you just enter low buy limit orders and then high sell limit orders, there is a good chance you'll make money. About 70% chance with my system, in fact. According to my simulations the average outcome is also pretty good at about 2% per trade. The average holding time is about 5 days. Unfortunately, you can't always trust the simulations due to low liquidity. A lot of times my limit orders don't get hit or I only get a partial fill. I am still thinking about how to incorporate that into my analysis.
I trade about 400 stocks and submit the same number of buy orders every night (plus a few sell orders for open positions). There is a lot of automation obviously. I use IB's API to submit my orders. They do maintenance work at night and sometimes all my orders get canceled. I hate that. Someday, I hope to have a real-time system, which would let my system trade at a higher frequency - as in, 10-20 trades a day instead of the current 5-10.
If people are interested, I will post weekly updates about how things are going for me. I would appreciate any suggestions or experiences other people might have had trading low liquidity stocks. I also have a few questions about the US stock market micro-structure.
Attached, is a chart of one of the stocks I trade. It looks like anyone would make money trading this stock but obviously, it's much harder to find a system that's consistent across the board.
I've had one loosing month so far in June 2010 when I dabbled in futures in the same account and lost <1%.Anyhow, I am still tweaking my system and hopefully will see better results in the future. I also need to adapt as my account grows from the current 51K and I start hitting liquidity limits.
The idea behind my system is pretty simple. There is a lot of noise in low volume stocks so if you just enter low buy limit orders and then high sell limit orders, there is a good chance you'll make money. About 70% chance with my system, in fact. According to my simulations the average outcome is also pretty good at about 2% per trade. The average holding time is about 5 days. Unfortunately, you can't always trust the simulations due to low liquidity. A lot of times my limit orders don't get hit or I only get a partial fill. I am still thinking about how to incorporate that into my analysis.
I trade about 400 stocks and submit the same number of buy orders every night (plus a few sell orders for open positions). There is a lot of automation obviously. I use IB's API to submit my orders. They do maintenance work at night and sometimes all my orders get canceled. I hate that. Someday, I hope to have a real-time system, which would let my system trade at a higher frequency - as in, 10-20 trades a day instead of the current 5-10.
If people are interested, I will post weekly updates about how things are going for me. I would appreciate any suggestions or experiences other people might have had trading low liquidity stocks. I also have a few questions about the US stock market micro-structure.
Attached, is a chart of one of the stocks I trade. It looks like anyone would make money trading this stock but obviously, it's much harder to find a system that's consistent across the board.