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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Essential Trading Tips for the Junior Mining Shares Investing

Commodities / Metals & Mining Dec 16, 2009 - 05:06 AM GMT

By: Dudley_Baker

Commodities

Best Financial Markets Analysis ArticleWe 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 Pierce Baker
Guadalajara/Ajijic, Mexico
Email: support@preciousmetalswarrants.com
Website: PreciousMetalsWarrants
Website: InsidersInsights

Dudley Pierce Baker is the owner and editor of Precious Metals Warrants and Insiders Insights. Articles are written by Dudley Baker along with contributing editors, Arnold Bock of Mendoza, Argentina and Lorimer Wilson of Toronto, Canada. PreciousMetalsWarrants provides an online subscription database for all warrants trading on junior mining and natural resource companies in the United States and Canada and a free weekly newsletter. InsidersInsights alerts subscribers when corporate insiders of a limited number of junior mining and natural resource companies are buying and selling.

Disclaimer/Disclosure Statement:PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed herein are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

Dudley Pierce Baker Archive

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