In the capital market you must have often heard the term fried stock. I think everyone can define fried stock. Yes, fried stocks are stocks whose movements are not liquid and are easily manipulated by stock dealers. If I may say, there are many fried food stocks in Indonesia.
Well, why is that? Ask you.
Actually it has something to do with the Efficient Market Hypothesis. However, I will not go into more detail on the topic (I will discuss it in a separate post someday). Since there are many fried foods in Indonesia, what you need to know is how to recognize the characteristics of fried foods. OK, here we go.
First. Fried stock is illiquid. It is illiquid which means that the market capitalization* is small, there is not much buying and selling activity on the stock. It can also be said that the bid-offer queue is only small. The illiquid stocks will be easier to manipulate by the dealer, compared to liquid stocks with large market capitalization and a very large number of bid-offer queues.
* Market capitalization is the number of shares outstanding x the company's share price.
Second. The graphic patterns are very irregular. Volume is not stable, often the graph is formed with a small volume, suddenly the volume becomes very large for no apparent reason. Stock prices do not move, at certain times the stock goes up fast, then drops drastically very quickly.
You want to see examples of fried stock chart patterns? Here is an example, a stock coded PRAS.
It seems very clear, this is an example of a fried stock chart. Volume is very unstable. Often the volume does not appear, suddenly appears with a large volume. Stocks are often not traded (see square sign). Then once in a while the stock price goes up and down so drastically with a large volume (see arrow). Stocks with charts like this cannot be analyzed by technical analysis.
Third. Stock prices tend to be relatively low, usually below 1,000. Why is it relatively low? Because the lower the stock price, the less funds you need to buy shares. Most likely, and it is often proven that the stocks that are fried by the dealers are actually stocks with low prices, even gocap stocks will often be easily targeted by the dealer.
Do you still remember when BUMI's stock that had become gocap was then fried again? Precisely on June 9, 2016, BUMI's stock was still sleeping soundly, at a price of Rp50, but suddenly the volume increased. And sure enough, the next day BUMI's stock suddenly moved up until it got auto reject right. The next day again, got AR right up to the price of 90. Very fast, isn't it?
Suddenly in a few days the price immediately dropped dramatically, and as of the time of writing this post the price returned to 68. You can see the chart below. Obviously this is an example of fried stock - BUMI Stock.
Note: Stock prices tend to be low, not always fried stocks. The stock price is a bit high, it could also be fried stock. However, in general, fried stocks are stocks with low / cheap prices.
Why are so many cheap (illiquid) stocks fried? From a psychological point of view, people will be more "happy" to see cheap stocks than expensive ones, because it is easier to buy the shares. There are very few retail investors in the capital market with limited capital.. So, with a relatively low stock price, it is easier for the dealer to invite retail investors with small funds to participate in the stock that the dealer has planned, and in the end, you become involved..
Fourth. Most issuers have problems. Issuers experience debt problems, bad track record of directors, factory fires and others. Issuers with problems usually share prices tend to fall drastically. When the stock price declines, the bookie can increase the stock price unreasonably at any time. However, you need to know that not all fried stocks are issuers with internal problems.
For example, EARTH. Another example is READY, TRAM.
Fifth. The rise and fall of stock prices is uncertain. As I explained in the second point, fried stock prices are volatile, and cannot be detected by technical analysis.
FRIED SHARE OR NOT????????
On Facebook Learning Stocks, I often receive questions from colleagues: "Sir, do you have any recommendations for fried stocks?" "Sir, what kind of fried stock is it?"
Well, if you want to know the list of fried stocks in the Indonesian stock market, then I won't give you the list.
"Why? Why are you so stingy?" You protested.
Determining fried stock or not is a rather SUBJECTIVE assessment. What does it mean? This means that every person, every broker, every one of you, may have different interpretations to determine whether A stock, B stock, C stock is included in the fried stock or not. Do not believe? I give an example.
Sri Isman Rejeki (SRIL) shares have been LQ45 shares for several periods - at the time of writing, SRIL is still a member of LQ45. However, many traders call SRIL a fried stock. SRIL stock price is always sideways. Suddenly, with a large volume, SRIL went up fast, only for a day or two, then fell again quickly... Does that mean SRIL is also fried stock? Thinking about it, yes....
But if you say fried food, why does it enter LQ45? Now, the subjective assessment of each person on fried stock can be different. That's why I never provide a list of fried stock, even recommend fried stock. After all, I also don't have city friends.
How, you already understand about fried stocks?
