The FTSE AIM can be cruel and it can be kind. You can start the week feeling in control, and finish the week feeling completely confused and dejected. For those of you who really want to experience the full rollercoaster that is trading on AIM, follow these simple rules and you’ll make the Market Makers that bit wealthier in no time at all.
AIM Trading Tips: How Not To Approach The Market
To save time and energy, only focus on companies associated with the next big thing in Tech. Blockchain or Artificial Intelligence, for example. These industries are going to be huge, so any early stage companies working on the development of such technology can only go one way – and that’s up. Have you seen some of the statistics and heard how revolutionary the technology is going to be? Why bother with boring established companies in boring established industries?
Alternatively, create a strategy based primarily on broker recommendations and price targets. These guys are the experts so if anyone can predict where the share price is going, it’s them. And whilst you’re at it, stay away from any stocks with a potential upside below 30 per cent. Snooze. There are plenty of resource stocks with a potential upside over 200 per cent. Why not just pick your favourite from these and wait for the money to eventually roll in?
Whilst you’re at it, there’s probably no point concerning yourself with the stock’s Exchange Market Size. You were able to get into the stock easily, so you’ll be able to get out again just as easily at a later date. When it comes to the FTSE AIM Market, liquidity issues are only associated with the smallest of small companies – like those with a market cap below 10 million, for example. Right?
In fact, you might as well just ignore the spread between the Bid and Ask Price completely. The sorts of companies on AIM have the potential of doubling or tripling in no time at all, so what’s a few per cent lost here and there. Even 20 per cent will seem like nothing when the stock really takes off. Who really cares if the stock is traded on the SETS or SETSqx trading system? All that matters is the potential.
Now that all of your hard work has paid off and the share price is going in the right direction, feel free to sit back and relax. You got in at the right time, so enjoy the fruits of your labour. The stock can’t possibly go back to where you bought it now that it’s up over 50 per cent. Whatever happens, you’ll be in profit. Despite not devising an exit strategy when you first bought the stock, you’ll be able to control your emotions and think rationally if things do turn south.
Alternatively, perhaps the stock didn’t quite make the move you were expecting. Just hold tight. You’ll feel pretty foolish knowing you didn’t hold your nerve at a 5 per cent loss when it finally rebounds. At times like this it’s often useful to read discussion forums and go through Twitter to be reassured by other like-minded investors that it remains a good investment. Down 10 per cent? Well, you’re too far gone to back out now. Let things develop.
Above all, though, always make sure to get in quick before the share price of a particular company goes even higher. This is key. When you see the share price starting to move there isn’t time to make any checks from a technical standpoint. Areas of support or resistance? Not important. Levels of trading volume? Better just to assume a sizeable move indicates the smart money is making some serious moves. Current prevailing trend? The direction in share price across the past week is all that matters.
AIM Trading Tip: Understand The Environment To Reduce Your Risk
Most of these thoughts and strategy (or lack of) have been me at some point. Looking back I’m amazed I didn’t actually lose all of my money in those early days of investing and somehow came out even.
Upon reflection, to reduce your level of risk and improve upon your returns, you really need to understand the ways in which the regulatory environment and trading systems used on AIM differ from the Main Market. The articles linked to from this post should definitely point you in the right direction, but make sure to explore the full site to really improve your trading on AIM.
Do you have any other tips on how NOT to lose all of your money on AIM? Get in touch and I’ll update this article to reflect your contribution.