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We suggest that investors be aware of the high risk of investing
in this sector as well as the spectacular potential rewards. Investors are
encouraged to focus on companies with excellent management, excellent
properties and cash in the bank. This will greatly increase our chances of
success along with learning the trading tips which follows.
Liquidity Issues
Do not expect the common shares to trade as freely as would
bigger companies on the TSX or the NYSE. Knowing what to expect is half the
battle.
With the larger companies investors need not worry about the
liquidity factor and can frequently enter and exit positions for a mere tick
or two. The shares normally have a rather large trading volume each day so
liquidity is basically a non issue as contrasted to the liquidity in many of
the natural resource shares and of course, the warrants.
It is not uncommon to witness on any given day an increase or
decrease in share prices on numerous companies of 25% to 50%. Sometimes this
could be caused because of company news but sometimes it is merely the
liquidity issue with only a small amount of shares being traded.
Knowing how to handle this liquidity will greatly assist your
trading and we will discuss this below in placing orders.
Placing Orders
To be a successful investor in the natural resource sector you
must grasp the following terms and concepts on placing your orders.
Bid and Ask Price - these prices are
found on virtually all quotation systems and tells us generally, the price at
which we can buy or sell.
Bid Volume and Ask Volume -
this information tells us how much stock is available for purchase or sale.
This information is also found on most quotation systems. Now you know how
many shares are available and at what price, both are very important.
Limit Orders vs. Market Orders
After you have determined that you wish to purchase say, 10,000 shares of xyz
gold at $0.75 you are ready to enter your order. So, you will have a few
choices when entering your order. You can chose to enter a market order or a
limit order. Simply a market order says you will pay the current market price
while a limit order says you will pay no more than $0.75. Personally, I
always use limit orders in my trading and thus know exactly what price I will
pay with no surprises. Using a market order with many of the natural resource
shares can be very dangerous and costly and should be avoided.
Day Orders or GTC
Also on your order entry you will be asked whether you want your order to be
good only for today or good until canceled (GTC). Depending upon the amount
of daily trading and the amount of shares available you may want to enter a
GTC order in which case your order will remain open for 30 days with most
brokerage firms.
Symbols for Entering Orders
This can be tricky depending upon your brokerage firm and your country of
residence. I would encourage you to visit our website, How To Trade, for more specifics
and detailed explanation.
Stink Bids
As we have mentioned numerous times above, the junior mining shares are
thinly traded and frequently have large spreads between the bid and ask
price. This situation actually sets up the opportunity to place 'stink bids'.
Say you have a favorite stock or perhaps a warrant which you
want to buy but the price has risen substantially. You would still like to
purchase the shares but being a savvy investor you don't want to chase the
price higher.
Each of us may pick a different ideal entry point based upon our
respective analysis and review of charts, etc. at which point we decide to
enter a buy order at substantially (25% - 50%) below the current market
price. Thus, a 'stink bid' is what we enter in hopes of a sharp market
decline in the shares. Thus we are there with our 'stink bid' to capitalize
on this, at least, short term imbalance in the trading of the shares.
So Does the Average Investor Stand a Chance? Definitely!
Spend a little time to learn the common sense rules of investing in this
sector as we have briefly described above and soon you will be a pro.
In our opinion, all investors should participate in the decision
process of which specific stocks, indices, warrants, etc to purchase. Those
investors spending the time and additional analysis will be richly rewarded
as this bull market in the precious metals and energy sector surges forward.
Patience, due diligence and timing our entry points, we
confidently believe, will lead investors to incredible gains in the coming 24
months.
Yes, these are still challenging times and while we may not have
all of the answers we strongly believe in our current positions and have the
patience to ride out our convictions and for numerous reasons we see a top
between January 2011 and January 2012 in the precious metals sector. Can
you hang in that long? That is a question only you can answer.
For those readers unfamiliar with our services:
- PreciousMetalsWarrants.com
provides an online database for all warrants trading on the natural
resource companies in the United States and Canada.
- InsidersInsights.com
tracks the buying and selling of corporate insiders with a focus on the
junior mining and natural resource sectors. Buy and Sell Alerts are
issued as deemed relevant based upon our analysis.
We encourage all readers to sign up for our free weekly email.
Dudley Baker
PreciousMetalsWarrants
Also
by Dudley Baker
Dudley Baker is the
owner/editor of Precious Metals Warrants, a market data service which
provides you with the details on all mining & energy companies with
warrants trading on the U. S. and Canadian Exchanges.
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