It is a great idea to have a few blue chip stocks in your portfolio. But, is blue chip stock trading really worth the effort? After all blue chips are large cap stocks that are solid, secure and not always very volatile. And it is in volatile stock trading where the profits commonly reside. Here are a few thoughts about the pros and cons of blue chip stock trading.
High Volume, Good Liquidity and Volatility
As a rule technical analysis of stocks is more accurate when a stock trades in high volume and liquidity. To a degree those who prefer blue chip stock trading to trading penny stocks are banking on the accuracy of their technical analysis. In fact, many traders wait to see when large cap stocks start trading in high volume before they jump into the market. A large cap stock with recent high volume trading is Royal Dutch Shell at nearly two million shares and a price dip of a dollar and a half a share from early morning June 24 to mid-day June 25. This is a stock that traded for $63 a share in June of 2013 and just peaked on June 23 at $82.75 a share. This big oil company has had enough volatility to make blue chip stock trading profitable. Why is that? Royal Dutch is busy spinning off various assets which can affect stock price. And the troubles in the Middle East go on unabated. This fact threatens to drive the price of oil and the Royal Dutch stock price higher. There is enough volatility in this stock to expect profits when traded correctly. And the huge trading volume and good liquidity of this stock make it a good fit for technical analysis of evolving market sentiment.
Blue Chip Fundamentals and Technicals
When we think of blue chip stocks we think of companies like Microsoft. They dominate their market niche and have grown exponentially before finally leveling off. Microsoft was a great stock to trade for years and now it tends to languish in the $40 a share range. However, Microsoft has a trading volume in excess of six million shares and is extremely liquid. It has also been trading in a saw tooth pattern for the last year or more. On its way from $33 a share a year ago to $42 now the stock has been briefly down to $31 and seen up and down movements of as much as $3. It is fundamentals that have driven Microsoft price up from $31 a share to $42 a share. And it is market sentiment that has caused the saw tooth pattern of the Microsoft stock chart for the last year. Blue chip stock investing in Microsoft has been profitable for those who saw the future and bought at $31 a share. Blue chip stock trading has been much more profitable for those who have cashed in on the repeated stock jumps of a dollar a share or more over that same time frame. As always, an attentive stock trader can greatly out perform a buy and hold investor, even when price movement of a stock like Microsoft is generally up. And it turns out that trading hot stocks really can include blue chip stock trading if you pay attention and get in at the right time.