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Stock Trading Tips-View Hot Stocks Like a Market Maker
Disclaimer
Stock speculation is very risky and may not be suitable for you
Do not trade with more than you can afford to lose.
Seek professional investment advice.
This is not investment advice.
No warranties, you are on your own.
I started in OTC Trading at E.F. Hutton in 1966
I noticed stocks had different characteristics Price Volume Spread
Stock Personalities
Some were lazy and some jumped around wildly
Before NASDAQ
We used the real Pink Sheets to find market makers and call three of them by phone
Deciding to make a market in a stock
I used fundamentals – the company had an exciting business and future = there will be volume and price change = market maker profits
Questions I asked as a market maker
First, who is my competition? What market makers were in the stock?
Types of Market Makers
Volume traders Value traders Investment bankers trading their companies
Who is high bid and low offer
Do these market makers have an axe to grind?
Spread and volume?
How fast can you get in and out? Can you beat the spread?
Shares outstanding and float
Stocks with small floats tend to be volatile
144 sales coming?
Was it a shell – barred from 144? Is the end of the holding period coming up?
Private Offerings?
Look out for Form D filed with the SEC indicating private placements
Earnings Announcements
On what days do earnings announcements usually hit the market? Watch for trading just before those dates
Convertible securities and warrants
Look for convertible securities and warrants that could affect the market – at what prices?
Recommendations
Are there research reports or investor relations campaigns? By who and how reliable are they? Press releases?
Number of Shareholders
Is the list increasing for some reason?
Shorts
Is there a short interest? Are they slamming the stock down or being squeezed?
Is it a reverse merger stock?
Are the shell holders going to dump and how ethical are they?
Reverse splits, name changes, business changes
Has the company had frequent reverse splits, name changes, changes to the next trendy business?
Insiders
What percent of the company do insider hold? Are they buying or selling? Is the company buying?
Read their SEC or Pink Sheet filings
What is their status on Pink Sheet?
Dilution
Is the company thrifty in handing out their stock or do they regard it as toilet paper?
The Principals
Are they shareholder oriented?
Reputable affiliates?
Who are the accountants, attorneys, transfer agent, investor relations firm?
The Industry Is the industry popular? What is the company's competitive position?
The Chart – Tale of the Tape
Where are the support and resistance levels? Is the stock being accumulated, marked up or distributed?
Anticipating news
Imagine how the company might develop and what news might this cause
What am I doing here? What is my game plan for making money in this stock? Do I have an edge over others and if not, why get involved?
Rules for Investigating Dig into what you don't understand Don't stop until you are certain you have a real answer you can rely on
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Curiosity may have killed the cat but has saved the life of many an investor
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How to Find a Home Run Stock
How to Pick Hot Reverse Merger Penny Stocks
How the Shorts Raid Your Stock, Destroy Your Company and What to Do About It
John Lux Trader, investment banker, quantitative analyst, former OTC market maker and attorney Lux.investor@ gmail.com
Copyright ŠJohn Lux 2011