May 26, 2015

Avoid stocks with low liquidity

In a rally, it is always easy to buy most stocks. However in times of correction, liquidity suddenly vanishes.

Look at AXISCADES... stock had a nice run up from 200 to 400 levels but a much faster fall from 400 to 200. Needless to say, stock opened and closed at lower circuit 12 days in past 2 months (there was no upper circuit during the rally).

My general rule is to focus on stocks having 20 days average volume above Rs.20 crores. This gives a universe of 160 stocks and is more than enough for any trader/ investor.

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