December 05, 2007 11:47 pm
hey I'm new to my friend sent me this post:
Before investing in any stock, one major element that you have to look at is the company's daily volume.
The daily volume of a company is the amount of shares that are traded on any day. Most of the stocks that have minimal volume, 15,000 shares per day or less, have a problem, and there are numerous reasons you should try to avoid such low volume stocks.
One reason is that stocks with low volume often have very large price swings. These fluctuations are due to the laws of supply and demand. If there is only a few available sellers of the stock you want to buy, you are forced to pay what they want for the stock.
On the other hand, when you decide to sell the stock, you may be forced to keep the shares because there are no buyers of the stock, or to sell them in a really low price.
Since the low volume stock is "handled" by only a few persons, the stock is usually get hammered down harder than most stocks, and it is also more easily "treated" going up.
Stockholders of these type of companies are often very easily frustrated, and unless they are prepared to hold them for long periods, they very easily panic and sell their stock to the very first offer.
Nevertheless, you shouldn't judge a company solely on their average volume.
If the company's fundamentals are strong, you should not rule out the possibility of purchasing any stock of the company, but you must do a thorough research before making any final decisions.