When to pump and when to dump?

So why after major price spikes and crashes happen to companies such as DPS Resources Berhad, Harvest Court Berhad, Asia Media Berhad, and many many more, the latest being Patimas Computers Berhad, do still investors in Malaysia still flock to speculate?

Perhaps its the possible lure of big returns, quick profits and sheer excitement of quick price movements. It used to be that KLSE "those days" traded in volumes much more than today's KLSE. Sometimes even more than NYSE's volume. So if I might take a stab, it could be that investors sometimes feel really bored and are in it for some excitement.

So the question right now is what should you do, when you encounter such exciting prospects? Say at 9.00am on a weekday morning, you suddenly see huge volume for a certain stock, and it suddenly pushes up a few points. Should you join the pump? If so, when do you dump?

My recommendation is of course to limit your speculative bets to what you can afford, and cut it in half. Say you can afford to lose RM5,000 since you had a good month betting on a certain stock, cut your speculative bet to half of that, and make it RM2,500. Also, be sure to enter "early" to such events. If you are too late, when the price has went up far too many points from the previous day's closing price, then you should opt not to participate. If however, you are tempted to, then by all means. 


Once you get in, stay put and watch it closely. You should now choose from the following 2 actions:-

1. Hold it, and wait for it to go up. Since you do not know how high it will go, and what will play out, just hold it, and set the stop loss at your acceptable loss level which should be between 25% and 50%. i.e. Cut loss once your RM0.10 stock goes to RM0.05

OR

2. Hold it and wait for it to go up. Do not cut loss. Only take profit when you feel comfortable or when you think it has all been played out. 


One word of wisdom though, use the price action as your guide. Since news release might come a few days after, your best source of information is the movement of the share price. If you feel uncomfortable, sell it all, and exit. Also, be reminded that the winner will always be the "ones" behind the play. Whether or not you play the fool, is your decision.