How to Trade Stocks in a Stock Chat Room

December 10th, 2010 by admin Leave a reply »

Trading in a stock chat room can be beneficial but it also has many draw backs. When trading stocks in a chat room you have more eyes on the stock market. In theory this means with more than one set of eyes you should be able to find more profitable trades. For this to actually happen it requires that you find a chat room with strong traders who can find trades that will be profitable and they need to be able to do this on a consistent basis. You will need traders who are at least as good as you and maybe trade a different sector.

Most trading in stock chat rooms is based on day trading or scalping. In most chats you will want to enter and exit trades within that day in order to avoid any possibility of bad news hitting the company or the world overnight. Once in a room you will find certain traders who are better than others. There will also be traders who trade differently than you and you may never be comfortable trading their way and you probably should avoid it.

The drawbacks to stock chat rooms are the herd mentality that often permeates a room. This especially happens when you enter a penny stock chat room. Since penny stocks are notorious for their scams, insider trading and the infamous “pump and dump” schemes, penny stocks can be easily manipulated in chats.

In a penny stock chat, the traders who own the chat or the ones who look like the best traders will buy a penny stock with a low float. They will announce to the herd in the chat that they just bought a certain penny stock. At this point other traders will buy the same stock, since the stock is a low float penny, it will rise quickly at which point the initial buyer will exit with large gains. The worst or newest traders to the group often get stuck holding the worthless shares. Often penny stock companies will pay to promote their company and drive the price of the shares up while diluting into the extra volume.

The way chats are set up, you can never tell who the other traders are. They could be paid by the company to drive up the price. They can be working their own penny stock scams. The bottom line is be careful who your trading with, get to know the traders and whether or not you can make money on the trade. Get a feel for a room, analyze the trade before you make it and avoid being one of the herd.

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