Penny Stock Trading: Are You a Fundamentalist or a Chartist? (Part Two)

If you’re still not convinced that there’s a potential for great rewards when you buy penny stocks, allow me to enlighten you. On May 27th (five days ago as of this writing), SMTR once again posted a 100% gain over its low of 0.0001 before the Memorial Day Weekend, closing at 0.0002. Guess who’s been in this stock, and experiencing first-hand these up-and-down ticks, each one being worth 100% on your money? Yup. That’s what I’m trying to tell you. As somewhat of an aside, one thing that I have discovered about long weekends (especially any type of government holiday) is that there’s normally a pretty serious trading burst after the holiday weekend resumes. In the case of SMTR, it went into Memorial Day weekend looking as “dead” as ever, closing at 0.0001, and busting out on the 27th (the first trading day since the 23rd) closing at 0.0002. May I remind you, at the risk of sounding extremely redundant, that each time this price move happens, it means a 100% return on your money. I know I sound like a broken record about this thing, but since it’s so simple to make these percentage gains in the penny stock arena, how can (or why should) you resist?

Again, did I anticipate this move based on any type of fundamental data that I gleaned from SmartTire’s company reports? To be honest, I don’t even know if I’m spelling their company name right, for goodness sake. I looked at it one time, just to know what it was. I keep telling people that you don’t have to know JACK about a company’s fundamentals to make money off trading their stock, and this holds especially true in the arena of trading penny stocks. Do you run the risk of getting into a stock that ends up being de-listed, or sent to the pink sheets? Yep, and that has happened to me. This is why I always advocate never investing more money than you know you can afford to lose. You have to be just as willing to flush that money down the toilet as to invest it in a penny stock, because with some stocks, flushing the money down the toilet could produce the same return as getting into the stock.

I guess my main point is to not get bogged down with a bunch of fundamental data that really doesn’t indicate where the stock is going to go. All you really need to know is what the price chart tells you; you can easily find that out by going on Big Charts and checking out the different time frames of the stock’s price history. I normally check the 5-year, 1-year, 3-month, and then 1-month charts, each giving me a better picture of how the stock has been behaving. You should always look for a tight trading range with an almost horizontal line as far as the price activity is concerned, with light volume, over a decent period of time. With penny stocks, this time doesn’t have to be very long; even only a month is required sometimes to see a move happen. I’ve been analyzing price charts for so long, I can take one look at a penny stock’s price chart with the time frames I specified above, and in about 3 minutes I can tell you whether or not the stock has a potential to take off. The key is always the accumulation phase, where it looks like nothing is happening, but all the while the stock is gaining momentum as the foundation for a large move is being built, bit by bit, by quiet price action. It’s absolutely true that the more a stock acts like it simply cannot rise in price, the more likely it will. This languishing price action, where the prices seem to hit a ceiling and cannot rise higher, is all designed by the insiders (the manipulators) to discourage the public from buying until the time is “ripe” for the stock to be heavily promoted, and its price to be ridiculously inflated. At this point, the public jumps in, because now they have a “reason”, and more than likely they were duped into it by some “hot stock” report or fax blast, most of the time sent out by some pump-and-dump promotional company. It’s all pretty much a big racket, but when you know how to buy penny stocks, you can use this same information that bewilders the average public investor (really, gambler) to your advantage, because you are well aware of the stock’s true potential, because you have let the price chart do the talking instead of a bunch of boiler room salesmen.

Again, I have far exceeded my allotted time to post on this blog…it’s funny, because I still haven’t fully focused in on the fundamentalist point of view versus the chartist’s point of view. Needless to say, I can truly talk about buying penny stocks all day long. We’ll have to pick up this train of thought a little later…bye for now.