Yesterday I got pretty heated at some guys on our desk for being in what I call “a good play in a sucker stock” in the middle of the day. Every day for the past 2 weeks I have noticed that some guys get in plays where the risk appears to be 1 cent and the reward about 5-10 cents, but the truth is that the risk really is like 5 cents. Let me explain.

One of the easiest plays we teach our guys is an unusual held bid. This occurs when someone is just buying, buying and buying at the same price without dropping. As long as you have underlying bids that you can hit AND trust, then you should make the play. This is a play that I will make 90% of the time without hesitation IF the stock trades well. The other 10% of the time I don’t make this trade mostly because there are stocks that have a history of suckering you into them to make you loose 5 cents 4-5 times in a row.

In these sucker plays the buyer holds for huge size, drops a penny, yanks the underlying bids, forces you to take a 4-5 cent loss on what was only supposed to be a penny loss, and then comes back to the original price to keep buying. They will repeat this process a handful of times. By the time you catch on to this nonsense you most likely would have lost about 25 cents, meaning that you would have to hold the stock for at least a point to make it worth the risk you took. So what was supposed to be an easy scalp for 10-20 cents, now just turned into a nightmare play.

So how do you know what is a good stock and what is not? Well this comes from experience. But you can also look at a chart and look for levels where the bars have very little tails at a level that appears to be holding (see RIMM chart below at the $38 level) and compare it with a chart of a nasty sucker stock (PM around the $40 level).

These shenanigans are most likely to occur when the volume is light. The middle of the day is about gathering information and getting ready for the close. Most times these levels established during the middle of the day end up working out for the close when the volume is heavier. If you find yourself stuck in one of these plays and you lose a couple of times in a row, let the stock go. Wait for the volume to come in later in the day. Keep track of these stocks so that they won’t take your money in the future.