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Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

Thinly Traded Stocks - Technical Analysis

Many market pundits will insist that you can't use technical analysis on thinly traded resource stocks. They argue that if a $0.25 stock trades a few thousand shares, there may only be one or two market participants rendering a technical analysis approach invalid. Remember that if everyone tries to sell their shares at once that the stock price will plummet like WKRP turkeys being dropped out of a helicopter.


6 month daily chart


Obviously a stock that trades 5-10 times a day isn't going to reveal any secrets on a 5 minute time frame. Rather than dismiss technical analysis outright, I usually use weekly charts over a 2-5 year time. Weekly candlestick charts integrate price/volume data over longer time periods.


5 year monthly chart


From looking at these two charts, it becomes apparent that you need to allow for longer holding periods when you buy a thinly traded stock.

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