Sounds like a contradiction, but it can become reality. You just have to know where and how to search the high flying bottom bouncers. Of course, this “value momentum” trading system works only probabilistically. But that is the nature of trading anyway.
So, where to look for these mysterious bottom momentum stocks? In the small cap markets!
The reason is this. If a stock came down a long descent from much higher prices of a much better past, it is deemed to be cheap.
Note that it hasn’t to be cheap objectively by a comparison of inner value of the company and its market cap. It is enough that a historic high signals some statistical price appreciation potential. This psychologic trading mechanism works the better the more the real value is hidden. If a company’s numbers are hard to judge, the only gauge you have is the price.
What are the stock situations where the real value of the company behind the stock is difficult to estimate?
Right, the smaller a company the less information you can find about it. Exactly that is the chance in the small cap markets. Price potential is built up simply by a long fall from much higher prices and renewed interest in the stock. Seen on a statistical basis, it doesn’t matter that the real value, which is hidden, may be much less promising.
Important is that a stock in the penny and small cap markets that came down anyhow has the potential to explode. Other factors like smaller liquidity etc are only supporting the beginning price explosion. It may even be that some cheaters are pumping the stock. On a statistical basis all that doesn’t matter in detail. If the expectancy value of the trade is positive, all is okay.
The easiest way to get into some potential killer trades is this stock picking site that you can trust (you guess which one I mean). From there on only “statistical patience” is necessary. Often such picks will go nowhere. Of course, they can also misbehave. As always, money management is mandatory and especially so with high volatility trades.
The real beauty of small cap stocks is that they can go down hundred percent at maximum, while they can advance several thousand percent. So, have a sound money management in place, which in the stock market just means to diversify your capital to at least a few stocks, and you will tap the full potential of the small cap stock bottom picking system.