Managing Risk in Volatile Stocks

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To look for the maximum play for your buck, while still managing your risks, you cannot get involved with every volatile name possible. Some experienced traders prefer to trade no more than one NASDAQ stock at a time. "Be careful about wanting to shoot the whole wad," says one. "If you get caught in one of these volatile stocks that jump rapidly, you're dead. You shouldn't be in them. You are better off sticking to Microsoft or Compaq markets for two points' profit. There's nothing better than liquidity. Buy two hundred thousand and make two hundred thousand dollars. Stay patient and get your trade.

"You also want to take advantage of what you know about a stock's trading range. For example, let's say you know that Teledyne is trading between twenty and twenty-five, and you start buying at twenty-two and a half. When it pushes up to twenty-five, make the sale and wait until it drops down again before you buy some more."

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