Rolling Stocks
by: Larry Potter
Rolling stocks have a very clear and identifiable historical pattern, they are stocks that roll up and down in repeated waves like a roller coaster. These rolls may become predictable.
If you look at the chart of a rolling stock you can draw a line across the peak and along the bottom. The area between these two lines is called the channel. The upper line is commonly referred to as the resistance level and the lower line is referred to as the support level. It is in this area that you will want to buy and sell your stock. Selling your stocks is the key. When investing in the stock market, it is not when you buy that counts, it’s when you sell. You should know when you are going to sell your stock before you even buy them. Knowing when you are going to sell before you buy the stocks helps eliminate the emotional factors of fear or greed that sometimes push or pull us. As you become more familiar with rolling stocks the nervousness of being an investor will subside.
Here is an example of how one could have profited using this concept. Forget about commission amounts since they vary depending on who you use. And keep in mind that a Good 'Til Canceled order ( GTC ) is an order that instructs the broker that the order shall remain in effect until it is filled (either bought or sold at a predetermined price) or canceled by you.
Let's take a look at WEIDER NUTRITION INTL'A' ( WNI ). If you have ever lifted weights or picked up a body building magazine, you would be familiar with this company which has been around over 40 years (although it has not traded publicly all of those years).
Over a period of 6 months you could have bought and sold shares of this rolling stock on 4 different occasions. Each time you bought and sold this stock you would have taken in a profit of at least .50 per share. A support level of $3.25 and a resistance level of $4.10 had been established. A good entry point was at $3.50 while a good exit price would have been at $4.00. You were not going to be buying at the lowest possible price or selling at the highest point. Why? When you buy into a roller, you will always want to insure that the price has reached the lowest level and has now begun its move back up. You cannot determine the absolute bottom until you see it going back up. The same holds true for the high point but you have already addressed this by knowing when you were going to sell the stock prior to even buying it.
Now suppose you purchased $2,000 worth of WNI @ $3.50 per share on 12/31/99. You would have owned 571 shares. After that you would have immediately put in your GTC order to sell @ $4 per share. On 01/11/00 the stock price hit $4 and your GTC would have triggered the sale of your 571 shares for a .50 profit per share.
You would then multiply the profit you made on each share of .50 cents by 571 to see that you made $285.50 on the transaction. If you divide the $285.50 into the original $2000 initial investment total, you made a 14% return in only 12 days.
About The Author:
Larry Potter is a recognized authority on the subject of trading
and has been publishing his newsletter, Stocks2Watch®, since January of 1998. Each
evening, his newsletter contains picks for the next day and always includes a free trading tip.
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September 2006
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