It shouldn’t take a rocket scientist to figure out what I mean by a “flatliner”; it’s a stock that has fallen a long way over a long period of time and whose price is just bumping along the bottom now that all the sellers have sold and no-one (for the moment) wants to buy. The best way to illustrate is with the following price chart for Aquarius Platinum (courtesy of InterTrader, don’t miss out on their generous sign-up bonus):
I mention this because a guy I know in the United States tells me that he made several million dollars by taking positions in these flat-lining stocks and then simply waiting for some of them to rocket (okay, so it is rocket science) back up to their former glories.
Since the potential upside is massively disproportionate to the potential downside, you might wonder why everyone is not trading this strategy. Actually, I am, kind of, in my position trading approach. But I can think of (at least) two reasons why many others are not doing it:
- It requires a great deal of patience, and many spread bettors don’t like sitting around while their positions do absolutely nothing.
- What looks to be flat-lining on a long-term price chart may in fact be going up and down like a yo-yo on a shorter-term price chart; and that puts off the other crowd of more “conservative” investors.
I think that trading the flat-liners has a lot of merit providing your stop order is well outside the short-term volatility, and providing you take an actuarial approach to spreading your risk across many of these stocks. On this second point, the others that I have found include Allied Irish Bank, Assura Group, Aurelian Oil & Gas, Bellzone Mining, Bank of Ireland, Capital & Regional, Chariot Oil & Gas… and that’s just the A’s, B’s and C’s. [And none of them are recommendations, you understand]
Finally, don’t forget the InterTrader special bonus that I mentioned earlier: