A lesson in FOMO: MicroStrategy stock price continues to soar
MicroStrategy shares have skyrocketed recently. Here's what's driving the rally and why investors need to be cautious after recent gains.
Why is MicroStrategy's share price surging?
MicroStrategy's stock surged 15% on Wednesday to $495.98, continuing its meteoric rise as the company capitalises on its strategic investments and market positioning. The company has seen its shares skyrocket nearly 700% this year, significantly outperforming its peers and broader market indices.
This rally follows a series of high-profile moves to enhance its financial standing and expand its asset base, boosting its market capitalisation to $109.3 billion and securing its place as the 88th largest US public company.
Executive Chairman Michael Saylor credits the company’s bold strategies and innovative focus for revitalising its operations, transforming it into a market leader with substantial growth momentum.
Understanding the risks of parabolic price moves
The recent parabolic move in MicroStrategy's stock price presents both opportunities and significant risks for traders and investors.
Historical data suggests that such rapid price increases often lead to increased volatility, as evidenced by the Average True Range indicator jumping from 1500 to 3500.
Investors considering opening an online trading account should carefully evaluate their risk tolerance, given the stock's current momentum.
A potential pullback to the November 13 high would represent a 26% decline from current levels, highlighting the importance of proper position sizing.
Technical analysis of MicroStrategy's share price
The stock's technical indicators show extremely overbought conditions, though momentum remains strongly bullish.
Trading volumes have surged alongside the price increase, suggesting strong institutional participation in the rally.
Resistance levels have been consistently broken to the upside, with previous resistance points becoming new support areas.
However, the distance from major moving averages suggests the potential for mean reversion in the medium term.
MSTR chart
Risk management strategies for volatile stocks
Implementing strict stop losses becomes crucial when trading highly volatile stocks like MicroStrategy.
Consider using smaller position sizes than usual to account for the increased price swings and higher Average True Range.
Options trading could provide alternative strategies for managing risk while maintaining exposure to the stock.
Diversification across multiple sectors can help offset the concentration risk of holding volatile technology stocks.
How to trade MicroStrategy shares
- Research MicroStrategy's business model and market position thoroughly
- Choose whether you want to trade or invest
- Open an account with IG
- Search for MicroStrategy in our trading platform
- Place your trade using appropriate risk management
Remember that while momentum remains strong, chasing prices after significant rallies can increase risk. Consider waiting for potential consolidation periods that may offer more favorable risk-reward opportunities.
Always conduct thorough due diligence and never invest more than you can afford to lose. Past performance doesn't guarantee future returns.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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