Penny Stock Trading: NASDAQ, AMEX, and OTCBB Stocks

In light of the recent ban on short selling by the SEC, I really couldn’t resist writing another post here on Trading Penny Stocks Online. I definitely am not the kind of guy that wants to be chained to his computer 16 hours a day, cranking out 5 or more blog posts every day…that’s just not my style (if you doubt that, take a look at the archives—LOL). I normally only post something on this blog whenever I’m either tracking a stock and giving updates on its progress, or when “inspiration” hits me, or some loose combination of the two. Something about this short selling ban triggered some inspiration in me to write, so here I am. There are tons of topics within the realm of penny stock trading that I have yet to cover, primarily because most of the time I get stuck on one particular topic, or I’m so scatter-brained that I forget to mention the other stuff that’s important to know about trading penny stocks, or any class of securities, for that matter. I realized recently that I haven’t even covered the different stock exchanges, such as the NYSE, AMEX, NASDAQ, and OTCBB in detail, and described their differences as far as how to look for penny stocks on each one (and there is a difference). As an example, you will be hard pressed to find many NYSE stocks that trade anywhere below $0.10 a share, unless the company just tanked or something like that (hello, Lehman?). The NYSE has much stricter and higher standards for companies to be able to trade on their exchange than, say, the OTCBB. As a matter of fact, while the OTCBB is widely considered to be the “Wild Wild West” of the stock trading arena, the Pink Sheets, denoted usually by a “PK” at the end of the stock ticker, are the “Country Wild Ghetto West” of the stock market. I believe that a kid with a lemonade stand could qualify to trade his enterprise on the Pink Sheets…it’s that loosely regulated. But the point I’m getting at with the difference between exchanges is that I actually do have a “favorite exchange”, so to speak, for identifying penny stocks that have a potential to rise, and it is the American Stock Exchange (AMEX). If you’ll notice, two of the three stocks that I have profiled so far (AFT and PTN) are AMEX stocks. Is there a particular reason for this? Honestly, I can’t say that there is…I’ve just had an overall good experience (I hate to use the word “luck”) with AMEX stocks. The NASDAQ is probably second, and then the OTCBB third. Honestly, OTCBB stocks are notorious for illiquidity and being volatile and choppy and herky-jerky. Many times you can miss a move worth hundreds of percentage points due to the lack of liquidity that can be present many times with OTCBB stocks. I can’t say that I recommend the OTCBB for beginners, unless you don’t mind getting burned quite a few times before you “learn the ropes”. NASDAQ and AMEX are usually very good with liquidity, and pretty reliable as far as getting your trading orders filled, especially trading penny stocks with a limit order as I explained in a previous post. The main way you can tell a difference between an AMEX stock and a NASDAQ stock is that AMEX stocks usually have three-letter tickers, while NASDAQ stocks have four-letter tickers. OTCBB stocks normally have four-letter tickers, although due to the somewhat frequent regulatory violations of many OTCBB-traded companies, you will see a fifth letter added to their ticker, whether it be for delinquent filings with the SEC (signified by adding an “E” at the end of the ticker) or even for a bankruptcy in progress (signified by adding a “Q” at the end of the ticker).

Just judging from my experience in trading penny stocks among these different exchanges, AMEX and NASDAQ seem to “handle their business” the best. The price action and trading patterns are often much more reliable with these two exchanges than what you will find with the OTCBB markets. Truth be told, the OTCBB markets can be frustrating as crap sometimes, due to the lack of speed in their ordering system. Practically every brokerage on the planet advises you to use strong caution when trading OTCBB stocks, and for good reason. As I have explained before, I have been in several OTCBB stocks, and when you hit big, you hit big, but when you don’t, it can be for a myriad of reasons, many of which are ridiculous to try and explain. On one of my OTCBB trades, the company went totally defunct and was de-listed while I was still in the stock…the shares pretty much became worthless. Was I upset? A little bit, but at the same time, I knew my risk going into it, and I only committed an amount of capital that I was comfortable losing, if the trade were indeed to fall apart (which it did). If I can ever stress a “golden rule” of penny stock trading, or any other trading for that matter, it would have to be that you should never risk more money than you’re willing to lose. If a trade were to go bad (which they can do), would the resulting losses bankrupt you? If so, you do NOT need to put any money in that trade. I would rather miss out on a trade altogether than trade with “scared money”, as I call it. Never trade with the jackpot mentality, of “this one’s gotta hit big, or I’ll be evicted out of my apartment”, or whatever the case may be. The markets should never be treated like a slot machine or a craps table, although the markets themselves operate on the same premise as the casinos (the house, long term, has the advantage). As I have explained several times in previous posts, as well as will explain in the future, buying penny stocks and selling them for a profit is actually a very simple thing to do, but it’s not easy. It takes discipline, self-control, and the willingness to be wrong a lot. It’s the internal, intangible ingredients like this that make up a successful trader, no matter what exchange they happen to be trading.