Understanding & Avoiding Losing Stocks: What Are 'Torpedo Stocks'?

In the world of stock trading, there is one term that you want to be aware of, that is, the "torpedo stock." Here are the basics of the torpedo stock and why you want to watch out for them.

Torpedo Stock

A torpedo stock is one that has fallen greatly in value, in a short amount time. When you look at the stock chart of this particular stock, it looks like a boat that has been hit by a torpedo and is sinking rapidly. When this happens, the stock may not stock plummeting, until it hits bottom and therefore the company has filed bankruptcy.

There are any number factors that can cause a stock to become a torpedo stock rapidly. For example, a dramatic change in the way the company does business could frighten investors and make them want to sell their shares immediately. When this happens, the price of the stock will plummet and it may be impossible for you to find a buyer. Therefore, if you believe a stock is at risk of becoming a torpedo stock, you will want to get out as quickly as possible and avoid losing your investment.