Stock Trading Psychology - Share Price Psychology

I am always baffled how share price psychology works. People would rather buy a $3.00 stock versus an .80 stock on it's way to $3.00 Remembering that the $3.00 was itself an .80 stock at one time.

Over my many decades of investing and researching junior mining companies I can't tell you how many times I have watched a .40 stock grow to $1.00 and beyond. Upon sharing this news with investor acquaintances many respond the same way. "That's great, but I don't buy penny stocks, I only buy stocks that are over $3.00"

He's almost always the same guy who buys the same house I have, only two streets over where the price is $150,000.00 more expensive. The perception of psychology of price is a very powerful thing. Obviously many equate price to quality, and we all know that's a terrible mistake as often price does not equal quality at all.

Let me give you a good example:-

Century Mining trades on the Vancouver Exchange under the symbol CMM.V and as of this writing the share price is around the .20 mark. Two years ago it was just over $1.00 .. and gold was $700.00 an oz. today we are just shy of $1,000.00 an oz.

It has far more going for it today than it did two years ago at that much higher level. Today they are about to receive $65 million dollars in financing to restart their successful Quebec mining project. They already have their NI43-101 report and have proven gold to exist in pretty sizable quantity.

Some will wait till it hits the dollar mark and then think they have found a great investment, with enough gold to be a productive mine for decades. It's that perception or psychology of a stock's share price that falsely lures them. Somehow thinking it's safe now that it's over a dollar.

We know from many examples that price is the trigger for many. I'll buy the name brand, latest greatest golf clubs for $2,500.00 and what, it'll improve my 25 handicap? Better to have spent the money on good golf lessons and then really enjoy the expensive new sticks. But then that would be too logical now wouldn't it.

Is Century Mining a better stock at $1.00 or $3.00 well it certainly is for those that bought it at .20 . If your research and due diligence tells you it's undervalued at these levels today and thus a great buy at .20 what changes at $1.00 , essentially nothing. The quality was there in the first place.

With the US dollar in decline under the weight of their massive debt and gold looking to top the $1,000.00 per ounce level any day now, the mining sector is scrambling to get all their ducks in order. Again there is Century Mining, not years away from being an active mine, but likely only weeks, after their financing news is released.

Share Price Psychology is always in play. Which I guess is a good thing. It means that people who buy stocks at .20 will be seriously rewarded when their stock hits the $1.00 level, as buyers seem to be lined up to buy at that level.

You can't fight the share price perception, understanding the psychology of it defies simple logic. But then again, we're mere mortals and not often very logical.

Mike Perras manages the Canadian Stock Alerts blog. While these alerts are never meant as a recommendation to buy a particular stock, they are nonetheless a heads up or an alert to a certain potential positive trend.

Canadian Stock Alerts follows one major rule, follow the volume! When trading volume in any stock is higher than usual, a trend has been established. While the stock may go higher or lower is in fact irrelevant. Stocks that go higher, always pull back. Stocks that go lower are often oversold. In both cases alerts may be issued.

Mr. Perras always recommends trading on paper first before following any new investing strategy. Try it out, without using real money. When you can see first hand that this style of investing works and satisfies your own risk tolerance level, only then should you consider it a strategy you want to work with.

Canadian Stock Alerts does not receive any compensation whatsoever by any of the companies it issues alerts for. Alerts are issued in real time during market hours and follow the "higher than usual volume" rule always. One's own due diligence is always recommended when it comes to any kind of investing.

His system Best Stocks For Easy Profits is also available online. Take a look and see some real life examples.

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