Consider this scenario:
You buy 1000 lots (1 lot = 100 units) of a stock at Rm1 per share. You place a stop-loss at 95 sen. You say to yourself, " I am only prepared to lose only 5% in this trade if it turns sour. So my loss is limited to RM500. "
Immediately after you have bought, the price starts to drop. The screen shows: Buy 95sen 100 lots; Sell: 96 sen 500 lots; Last done 96 sen.
Now, are you going to trigger your stop-loss and sell 100 lots to the buyer? Bear in mind that you have 1000 lots to sell at 95 sen.
While you are undecided, the buyer suddenly pulls out. The screen shows: Buy 94 sen 200 lots; Sell 500 lots 94.5 sen. In such a circumstance, what are you going to do? Sell everything at below 95 sen or wait until there's a pullback to 95 sen, then sell. What if there is no pullback, and the price keeps dropping?
So, you see, you can plan your trade, but you may not be able to trade your plan.
Here's another possible scenario: Stock AQ has been in an uptrend for sometime and in the last few days, the stock has been hitting new highs everyday. Your remiser whispers to you, " Buy this stock, I have insider news that it will hit RM10 in the next few days. The stock is now selling at RM6."
Wow! You said to yourself, " Here's my chance to make a lot of money. I shall take the tip and place a stop-loss at RM5.50. My risk is only 50 sen. So there is not much danger." Now what may happen is this:
After you have bought at RM6, the stock really moves up. Higher and higher it goes,
RM6.30, 6.40, 6.50 and still going strong. You become greedy and buy more. The stocks hits limit-up sending you to cloud 7.
Suddenly, Bursa makes an announcement, AQ is suspended pending an enquiry. After a few days of investigation, Bursa classifies the stock as a designated security. This means that if you want to buy the stock, you have to put money upfront.
This has a big impact on the stock immediately. When suspension of the stock is lifted the following day, it gaps down at the opening bell. Fear sets in. There is a rush for the exit but only a few can get out before it goes limit-down.
Before long it was trading at a much lower price than your initial purchases. You are trapped.
From the above two scenarios, you can see that it's actually not easy to trade according to what you have planned.
Tips from remisers are actually the most unreliable. When a big boy wants to unload, whom do you think they will entrust the job to. Remisers of course.
Want to trade? Think again. Do you have the capability to cope with ablest money getters in the world?
