Who has the best penny stock strategies?
by Gary James on Friday, September 3rd, 2010 | 7 Comments
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Hey everyone, Gary here. Stock trading was never my forte'. I lost tens of thousands of dollars listening to stupid advice and letting other people trade for me.Then I discovered penny stocks. I am talking about real companies listed on major stocks exchanges that were beat down and sold for $5 or less a share. I found a few online penny stock newsletters that let me make my own decisions.
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Check the best penny picks at
http://nse2rich.com/tag/penny/
There aren’t any. Stay away.
I second Falsi. Get it straight. Penny stock is a scam and the only ones making money are the sammers. You can win 50 % of the time in lots of games in Vegas. Plus you get some free drinks.
The key to making money in penny stocks is great money management skills. This would include position sizing techniques, stops that are well placed and honored and tightening the stops once the first target point is hit. Many people will slowly get into a position &/or gradually get out at pre-determined spots. Without these skills (which can take years to develop) you can’t make money in penny stocks…. not over the long term!
PS: If you "follow" someone else’s plan…. you will not make money. The only plan that will work is the one you create and follow.
No never go with penny stocks always protect your money against crash
Go with heavy Weight / blue chip companies
Common Sense is right, you must have rules, and you must follow those rules. There are so many mistakes. There are so many things that we can do wrong. And if you mess up in any one area, you could lose money.
Trading has a psychological side. You have to know yourself and others. This is especially true in penny stock trading. For example, people have this tendency to assume that if a stock is going down, then it will continue to go down, so they sell short. When a lot of people sell short, the stock becomes explosive. The smallest buying can ignite a buying frenzy, which can push the stock up several thousand percent high. Also, if you buy at the wrong time, there’s this feeling that you have to make up for the loss. So, you get more aggressive. You double your trading or the size of your trades. You take more risks. And this is very dangerous. So, you have to know yourself.
Trading also has a money management side. If you find a good stock and put too much money in it, it may turn out to be a loser. I have noticed that when I feel that I need to put all my money into one stock, it’s a trap. It’s going to be a loser. The stock market has this magical pull. When something is about to crash, people feel a tremendous urge to buy. And some people feel that they need to bet the whole ranch. This feeling is something you have to recognize and know that it is very destructive.
Trading also has the technical side to it. You have to know how a penny stock looks like before it’s about to explode. I’ve studied these penny stock explosions, and have noticed a couple of things that happen prior to explosion. Here are a couple:
1. BREAK SUPPORT. Before a penny stock goes up, very often it will convince traders that it’s time to SELL instead of BUY by breaking a key support level. This often happens right before or just a few weeks before a giant price explosion. Note that volume will be light. Even if there’s a volume spike at the moment of breaking support, this volume spike is not big enough. There’s no real selling going on. Also, insiders may sometimes generate a fake panic by selling lots of shares all at once. Then they quickly turn around and buy even more shares from scared investors.
2. A spike in volume to the upside and spike in price that breaks the downtrend for a single day or two. I often see penny stocks that jump up crazily several hundred percent with huge volume and then they fall back immediately. I am not sure what this phenomenon is and why it happens, but it usually precedes a major explosion. It’s a sign that the stock is getting "charged" up, ready to explode.
3. UP-AND-DOWN UP-AND-DOWN along the resistance line. A stock that wants to go up, will try to move very close to OR along a long resistance line, and will often have one or more of the spike I just mentioned earlier.
4. VERY OFTEN you will see a descending wedge chart pattern or upside down head-and-shoulders or an ascending triangle pattern before a stock actually breaks out. The wedge is the most popular.
5. Volume is often low. There are stock strategies that say that you got to buy when volume is high and the stock is moving up. Yes, that’s one strategy. I have another strategy. I buy after a stock falls below support on light volume.
6. LOOK FOR SIGNS OF ACCUMULATION. What is accumulation? It’s when large investors put money into a stock. Usually this happens when a penny stock has low volume, and occasionally it rises, and with each rise, the volume picks up. So, when the price is low, you have low volume. As prices starts to go up and hits a horizontal resistance line, you have a small volume spike.
Some stocks go up several hundred percent after they nose dive. First, they go down into hell, and then up like crazy. I have not been able to find a strategy to trade these charts, because it’s really hard to tell when a stock is going to stop falling. They call this "catching a falling knife." I don’t think it’s a good idea. I like to look for accumulation, because it’s easier to spot. You have more time to think and decide whether it’s a good buy or not. When a stock is in a nose dive, it is falling very rapidly, and timing is very important in these situations. You don’t have a lot of time to decide if it’s a good buy or not, because if you wait too long, the stock could turn around in a moment and skyrocket. So, it’s better to pick a scenario where you have plenty of time to decide what to do.
7. SELLING. Knowing when/where to sell is extremly important. One time I picked out a penny stock. Bought it at the perfect time. It jumped up and I was very happy. Then few weeks later it descended. I didn’t sell it at the high point, because I thought it would go up higher. I didn’t have a plan. So, just because you succeed at buying the right stock at the right time, don’t think that you are a winner. You can be smarter than everyone else, yet still lose money. You are a winner ONLY IF you can sell with a huge profit! And even after that, you are a winner ONLY IF you can keep that profit and not lose it in your next trade. It’s not easy…
If you would like to develop your own strategy, I would suggest you read 100 MILLION DOLLARS IN PROFITS by Kelly Angle. The author tells how his father made 100 million dollars trading gold futures, but after the story, the author explains how to create a reasonable trading plan. I’ve found it very useful.
I like the penny stock advice given on http://www.pennystockdefinition.com