Whether you’re a speculator looking to buy penny stocks, or even if you’re simply paper trading a certain penny stock for practice, the importance of having patience cannot be over-emphasized. There’s a direct correlation between the level of patience you have and the amount of emotional stability you’ll be able to maintain when trading penny stocks, or any other market for that matter. While Forex is a much higher speed market, with lightning-fast fills and mercurial changes in price (like my use of the word “mercurial”?), the penny stock market, although volatile as heck sometimes, is still somewhat of a market that you have to practice the skill of patient waiting. I can say this from experience across the board, having traded all kinds of different markets (Forex, commodities, options, stocks, penny stocks, etc.), and there’s not one market I can think of that a price move happens as quick as you’d like it to. That’s just the nature of the beast, so to speak. Once again, it’s a matter of letting the market dictate to you what it’s going to do, rather than trying to “force” the market to do something (think Nick Leeson and the Barings Bank debacle).
So what do you do in the meantime, while you’re waiting on the big market move? Dude, get a soda, go see a movie, do something besides sitting there looking at every tick or blip on the trading screen, or obsessing over each little move up or down in price. What’s that old saying…”A watched pot never boils.” This is so true. While you’re sitting there, watching the pot and waiting for the water to boil, it seems like forever, but as soon as you break away to go check the mail or do something else, all of a sudden you come back, and the water is just boiling away. I have (finally) come to the place in my trading career where I don’t even look at the market every day. I may check the closing price for the day, but that’s it. No more intra-day analysis, or any foolishness like that, when I know the average penny stock I pick is not going to make its big move within one trading day. Nothing wrong with those who are day traders; I just found that that style of trading was much too stressful to me, and turned me into somewhat of a “trading screen junkie”, fiending for the next uptick or downtick. Nowadays, I analyze a stock chart, select my entry point, place my trade when my trigger is hit, and then let the chips fall where they may. If the trade works out, cool, and if it doesn’t…hey, still cool, I was only playing with money I could afford to lose. Once again, I am not an investment advisor, and will never purport myself to be one, but I will give this piece of wisdom to anyone who reads this: NEVER trade with money that you cannot afford to lose. You will find that your emotional attachment to that money, brought on by the added pressure of the thought that this particular trade could either “make or break” your financial situation, is far too much for you to handle, and that pressure WILL cloud your judgment, where you make hasty moves or wrong moves (sometimes they’re one and the same) and you never develop a sound, disciplined trading methodology, which is exactly what you need to trade penny stocks successfully. Impatience many times can come from the feeling that you have to make money "right now" due to some pressing financial obligation or some desperate financial situation. If you're trading in this manner, dude (or dudette), you're putting WAY too much pressure on yourself, and you need to really examine why you're even in the markets. Is it truly to apply sound investment principles in hopes of getting a solid and consistent return, or is it to play the markets like the lottery?
So again, before you start looking for penny stocks to buy, ask yourself this: Am I patient enough to wait however long it takes to see the price move happen? If not, pass the opportunity up, because frankly, you’re in the wrong business.
Sunday, June 29, 2008
Monday, June 23, 2008
Penny Stock Trading: Understanding Support and Resistance
Sorry for the mini-hiatus...I've been busy with a lot of personal matters, although I haven't stopped trading penny stocks to any degree. Good thing it doesn't take much to trade penny stocks, once you decide on your plan and then enter your position. That's the cool thing about trading in general is the personal freedom it affords; what other business or money making venture offers this much flexibility? You simply assess a price chart, make a sound decision, and then place your trade, and then wait for the market to (hopefully) do what you were thinking it was going to do.
Let me make it clear, though...the market is always going to do what it's going to do, and unless you have decided to move with it and not against it, you'll be another victim of the "whipsaw effect", and you will see your emotions getting the best of you, as well as seeing your money swirling down the drain. The markets are a serious drain on the emotional trader's account--take it from a guy who has first-hand knowledge. It's amazing how many tricks your mind can play on you when you allow fear and/or greed to take over. The true trader removes his/her ego and emotions from the trade; this is one of the hallmarks of successful trading; when you can watch your account lose 20% in minutes, and your heart doesn't even skip a beat. It takes confidence and maybe even a little "ignorant bliss" to trade without pulling your hair out. If you have confidence that you bought right, meaning you recognized a good chart pattern, planned your entry (and exit) based on well-established points of support and resistance (which we'll get into in this post), then you have nothing left to do but place the trade and let 'er rip.
Now, on to support and resistance...what do I mean by this stuff? First, you have to be a chartist for these terms to even apply. Support and resistance are definitely two of the cornerstones of technical analysis using price charts. So what are they? Basically, support and resistance are the "floor and ceiling" of a stock's price range. Have you ever seen a stock chart where the price of the stock just seemed to bounce around within a given range, and although it would hit some highs and some lows, it never could seem to break below the "floor" of a certain price, or above the "ceiling" of another price? This is what's known as support and resistance. Let's say that you're observing a stock's price chart, and you notice that this particular stock's price seems to trade between $0.15 and $0.35 a share, bouncing around within that price range. Then, there are weeks where the price repeatedly travels down to $0.15 a share and bounces right back up, and then down to $0.15 again, but it never can seem to break below that $0.15 level. You can rightly assume that $0.15 is the support level for this stock. Then, you're hopeful that the price will someday break out above that "invisible ceiling" of $0.35, and the prices may indeed bang up against that price level several times, but they just can't seem to rise any higher than that $0.35 level. You can rightfully draw the conclusion that $0.35 is the resistance level for this stock, because it seems as though the stock's price is "resisting" the thought of going any higher.
One of my absolute favoritest (is that a word?) quotes from Ted Warren's classic stock trading book, "How to Make the Stock Market Make Money for You", is the following quote:
"There's no greater proof that a stock is going to rise than when it acts as if it can't."
This can be seen in a great way by studying the support and resistance levels of any given stock's price chart. When a stock's price is just "trudging along", and seemingly not making any progress, but staying within a definite trading range defined by well-established support and resistance levels, rest assured that you're in the "calm before the storm". A lot of times the support and resistance points on a price chart are psychological price levels that the public is "used to" identifying the stock by. Once those levels are violated by extreme moves in either direction, you better believe that the price will travel farther in that same direction, be it up or down. What do I mean? Let's say that a penny stock has forever-and-a-day traded below $3.00 a share. The price may have banged up against that $3.00 resistance for years and years, and now there's a "flicker" of a move evidenced by a sudden break above $3.00 a share--let's say $3.20. Even if the stock's price quickly retreats back under that $3.00 level from there, rest assured, that $3.20 price will be revisited--and it will more often than not travel FAR above that resistance level...again, the strength of the move will be mainly determined by how long it's been "percolating" in that relatively tight trading range. The whole principle is based on one of those famous laws of physics which says "Objects in motion tend to stay in motion". Once the price breaks out of that support/resistance level, it will tend to keep moving in that direction, be it up or down.
Okay, I hope I have not bored anyone to tears with such a long post about penny stock trading using the basic principles of support and resistance. Go forth and kick butt!!!
Let me make it clear, though...the market is always going to do what it's going to do, and unless you have decided to move with it and not against it, you'll be another victim of the "whipsaw effect", and you will see your emotions getting the best of you, as well as seeing your money swirling down the drain. The markets are a serious drain on the emotional trader's account--take it from a guy who has first-hand knowledge. It's amazing how many tricks your mind can play on you when you allow fear and/or greed to take over. The true trader removes his/her ego and emotions from the trade; this is one of the hallmarks of successful trading; when you can watch your account lose 20% in minutes, and your heart doesn't even skip a beat. It takes confidence and maybe even a little "ignorant bliss" to trade without pulling your hair out. If you have confidence that you bought right, meaning you recognized a good chart pattern, planned your entry (and exit) based on well-established points of support and resistance (which we'll get into in this post), then you have nothing left to do but place the trade and let 'er rip.
Now, on to support and resistance...what do I mean by this stuff? First, you have to be a chartist for these terms to even apply. Support and resistance are definitely two of the cornerstones of technical analysis using price charts. So what are they? Basically, support and resistance are the "floor and ceiling" of a stock's price range. Have you ever seen a stock chart where the price of the stock just seemed to bounce around within a given range, and although it would hit some highs and some lows, it never could seem to break below the "floor" of a certain price, or above the "ceiling" of another price? This is what's known as support and resistance. Let's say that you're observing a stock's price chart, and you notice that this particular stock's price seems to trade between $0.15 and $0.35 a share, bouncing around within that price range. Then, there are weeks where the price repeatedly travels down to $0.15 a share and bounces right back up, and then down to $0.15 again, but it never can seem to break below that $0.15 level. You can rightly assume that $0.15 is the support level for this stock. Then, you're hopeful that the price will someday break out above that "invisible ceiling" of $0.35, and the prices may indeed bang up against that price level several times, but they just can't seem to rise any higher than that $0.35 level. You can rightfully draw the conclusion that $0.35 is the resistance level for this stock, because it seems as though the stock's price is "resisting" the thought of going any higher.
One of my absolute favoritest (is that a word?) quotes from Ted Warren's classic stock trading book, "How to Make the Stock Market Make Money for You", is the following quote:
"There's no greater proof that a stock is going to rise than when it acts as if it can't."
This can be seen in a great way by studying the support and resistance levels of any given stock's price chart. When a stock's price is just "trudging along", and seemingly not making any progress, but staying within a definite trading range defined by well-established support and resistance levels, rest assured that you're in the "calm before the storm". A lot of times the support and resistance points on a price chart are psychological price levels that the public is "used to" identifying the stock by. Once those levels are violated by extreme moves in either direction, you better believe that the price will travel farther in that same direction, be it up or down. What do I mean? Let's say that a penny stock has forever-and-a-day traded below $3.00 a share. The price may have banged up against that $3.00 resistance for years and years, and now there's a "flicker" of a move evidenced by a sudden break above $3.00 a share--let's say $3.20. Even if the stock's price quickly retreats back under that $3.00 level from there, rest assured, that $3.20 price will be revisited--and it will more often than not travel FAR above that resistance level...again, the strength of the move will be mainly determined by how long it's been "percolating" in that relatively tight trading range. The whole principle is based on one of those famous laws of physics which says "Objects in motion tend to stay in motion". Once the price breaks out of that support/resistance level, it will tend to keep moving in that direction, be it up or down.
Okay, I hope I have not bored anyone to tears with such a long post about penny stock trading using the basic principles of support and resistance. Go forth and kick butt!!!
Monday, June 9, 2008
Trading Penny Stocks: What Volume Can Tell You
This post is actually a continuation of the post-before-last on trading penny stocks (the one where the title says “Not Nearly as Hard as You Think”). I had explained that there were two basic things to look for when you’re looking to buy a penny stock—one being the sluggish price action in a tight trading range, as exemplified by the chart for AFT in my previous post, but I broke my train of thought (due to having to attend to some personal business) so I never gave you the second thing to look for when evaluating a potential penny stock to invest in. I want to go ahead with this post and pick up where I left off.
Volume is a very important indicator when determining whether or not a penny stock is poised for takeoff. Most stock charts will by default have volume listed underneath the actual price chart, so it’s pretty much a given as far as chart reading is concerned. When you evaluate volume for penny stocks, remember that the average daily volume will usually be higher the lower the stock price goes, due to the fact that a million shares of a one-cent stock doesn’t carry as much weight as a million shares of a blue chip stock. A big day on the average OTCBB stock will see shares traded into the hundreds of millions—an unusually high amount for a blue chip stock, such as Google. The basic point is that it’s all relative.
So what can volume tell you as far as whether or not to buy a particular penny stock? Again, without sounding like a broken record, volume is one of the key indicators as to how the “smart money” is snapping up shares of a penny stock. When you see light volume and a tight trading range, you can count on it; there’s a setup being made for a move up in prices, in relatively short order. This narrow price range may last for a month, or even months, and sometimes years at a time. Keep in mind that the longer the time period is, the more solid the move up will be, and the more percentage gain you can expect out of it. Think about it: When architects & engineers are designing an 80-story skyscraper, they don’t build it with a 5-foot-deep foundation. The higher up the building will be, the more deep they have to dig to set a solid foundation for the structure to stand on. The same principle applies here with volume; the more the price just snakes along in that little trading range, with very quiet price action and very quiet volume (i.e., no violent spikes), the more likely it is that a good, solid move up is being formulated, as the strong hands are quietly gathering up shares over time, little by little, with the sole purpose of dumping them en masse to the unsuspecting public once the time is right for the stock to look “good” in the eyes of the public.
I know these things may sound a little like a “conspiracy theory” type of thing, but it’s absolutely true. The very fact that stock analysts & market commentators talk about whether the “public is in the market or not” proves that there are other players involved besides the public. As the old Wall Street axiom has already stated, “The public is always wrong.” This could never be truer than in the largest casino of all, the network of stock exchanges that operate on Wall Street.
So how does all of this fully “fit” when it comes to buying penny stocks? Use it to your advantage; recognize the role that quiet volume plays over a good period of time, and keep a close eye on the penny stocks that display this type of action. When their price charts look the most “uneventful”, that’s usually when the main event is about to begin.
Volume is a very important indicator when determining whether or not a penny stock is poised for takeoff. Most stock charts will by default have volume listed underneath the actual price chart, so it’s pretty much a given as far as chart reading is concerned. When you evaluate volume for penny stocks, remember that the average daily volume will usually be higher the lower the stock price goes, due to the fact that a million shares of a one-cent stock doesn’t carry as much weight as a million shares of a blue chip stock. A big day on the average OTCBB stock will see shares traded into the hundreds of millions—an unusually high amount for a blue chip stock, such as Google. The basic point is that it’s all relative.
So what can volume tell you as far as whether or not to buy a particular penny stock? Again, without sounding like a broken record, volume is one of the key indicators as to how the “smart money” is snapping up shares of a penny stock. When you see light volume and a tight trading range, you can count on it; there’s a setup being made for a move up in prices, in relatively short order. This narrow price range may last for a month, or even months, and sometimes years at a time. Keep in mind that the longer the time period is, the more solid the move up will be, and the more percentage gain you can expect out of it. Think about it: When architects & engineers are designing an 80-story skyscraper, they don’t build it with a 5-foot-deep foundation. The higher up the building will be, the more deep they have to dig to set a solid foundation for the structure to stand on. The same principle applies here with volume; the more the price just snakes along in that little trading range, with very quiet price action and very quiet volume (i.e., no violent spikes), the more likely it is that a good, solid move up is being formulated, as the strong hands are quietly gathering up shares over time, little by little, with the sole purpose of dumping them en masse to the unsuspecting public once the time is right for the stock to look “good” in the eyes of the public.
I know these things may sound a little like a “conspiracy theory” type of thing, but it’s absolutely true. The very fact that stock analysts & market commentators talk about whether the “public is in the market or not” proves that there are other players involved besides the public. As the old Wall Street axiom has already stated, “The public is always wrong.” This could never be truer than in the largest casino of all, the network of stock exchanges that operate on Wall Street.
So how does all of this fully “fit” when it comes to buying penny stocks? Use it to your advantage; recognize the role that quiet volume plays over a good period of time, and keep a close eye on the penny stocks that display this type of action. When their price charts look the most “uneventful”, that’s usually when the main event is about to begin.
Tuesday, June 3, 2008
Buying Penny Stocks: A Textbook Example
I was waiting for a good example to show everyone the power of knowing what to look for when you buy penny stocks, and I believe I've found it. Actually, examples like this abound in the markets, I've just been too busy to do a lot of research lately outside of the stocks that I picked a couple of months ago.
Axesstel (AFT) was one such stock. I found AFT while doing a screen for AMEX stocks that were trading for $0.25 or below. This was back in February...I actually wrote it in my notebook that I have for stocks that I'm keeping an eye on. Here's what I wrote about AFT on 2/8/08: "AFT--Large sell-off (1.5 MM shares in a day) back in Dec. '07; quiet action since then; small trading range on low volume w/ nothing above $0.40 since Jan. '08; holding steady at or below $0.30/share for a solid month; closed @ $0.25". It took me a grand total of ten minutes to identify this stock, understand its current position and price action, and then make notes on whether or not I believe it had potential. The sucky thing about it is, I never made a move on this stock, because my capital was tied up elsewhere. Long story short, since February 8th, 2008, here's what happened to AFT:
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I know that the image is not very clear, but I believe you get the picture...that sucker closed at $0.80 today!!! I'm not making this up...go to Big Charts and look it up for yourself if you're skeptical. $0.80 is a little over THREE TIMES the price that AFT was trading at when I first spotted it. Would you like to make 300% on a stock??? You see my point now, why trading penny stocks according to chart patterns is one of the most profitable investment ventures you can get into?
Notice the chart pattern I'm talking about, from December of 2007 into the first few months of 2008. The stock endured a large sell-off at the beginning of December, which more than likely was the public jumping ship due to the rapid decrease in the stock's price. Something psychological happens when a stock breaks below $1.00 a share, and most people aren't ready to handle that level of price, so they normally close their positions in a panic as soon as they can. The thing is, this is where the most money can be made, to the astute chartist.
Notice that after the mass sell-off in December of 2007, there was a period of roughly 4 months where the price action on the stock was very quiet, the volume was low, the trading was smooth and not erratic at all, and there was strong support at around $0.25 a share. All of these factors combined were basically proof positive of an impending move up. Once the stock started "percolating" around $0.40 a share, it was only a matter of time before the true breakout was going to take place..and it did. The rest is history.
AFT still doesn't look like a bad stock to get into, because even now there looks to be a symmetrical triangle shaping up--in an uptrend, which is usually a sign of a further move up once the "hesitation period" is over.
Never doubt what you see on the charts, regardless of what advisors and brokers and pundits and lions and tigers and bears may be saying. This, my friends, is how you trade penny stocks.
Axesstel (AFT) was one such stock. I found AFT while doing a screen for AMEX stocks that were trading for $0.25 or below. This was back in February...I actually wrote it in my notebook that I have for stocks that I'm keeping an eye on. Here's what I wrote about AFT on 2/8/08: "AFT--Large sell-off (1.5 MM shares in a day) back in Dec. '07; quiet action since then; small trading range on low volume w/ nothing above $0.40 since Jan. '08; holding steady at or below $0.30/share for a solid month; closed @ $0.25". It took me a grand total of ten minutes to identify this stock, understand its current position and price action, and then make notes on whether or not I believe it had potential. The sucky thing about it is, I never made a move on this stock, because my capital was tied up elsewhere. Long story short, since February 8th, 2008, here's what happened to AFT:
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I know that the image is not very clear, but I believe you get the picture...that sucker closed at $0.80 today!!! I'm not making this up...go to Big Charts and look it up for yourself if you're skeptical. $0.80 is a little over THREE TIMES the price that AFT was trading at when I first spotted it. Would you like to make 300% on a stock??? You see my point now, why trading penny stocks according to chart patterns is one of the most profitable investment ventures you can get into?
Notice the chart pattern I'm talking about, from December of 2007 into the first few months of 2008. The stock endured a large sell-off at the beginning of December, which more than likely was the public jumping ship due to the rapid decrease in the stock's price. Something psychological happens when a stock breaks below $1.00 a share, and most people aren't ready to handle that level of price, so they normally close their positions in a panic as soon as they can. The thing is, this is where the most money can be made, to the astute chartist.
Notice that after the mass sell-off in December of 2007, there was a period of roughly 4 months where the price action on the stock was very quiet, the volume was low, the trading was smooth and not erratic at all, and there was strong support at around $0.25 a share. All of these factors combined were basically proof positive of an impending move up. Once the stock started "percolating" around $0.40 a share, it was only a matter of time before the true breakout was going to take place..and it did. The rest is history.
AFT still doesn't look like a bad stock to get into, because even now there looks to be a symmetrical triangle shaping up--in an uptrend, which is usually a sign of a further move up once the "hesitation period" is over.
Never doubt what you see on the charts, regardless of what advisors and brokers and pundits and lions and tigers and bears may be saying. This, my friends, is how you trade penny stocks.
Trading Penny Stocks: Not Nearly as Hard as You Think
In the arena of trading penny stocks online, there’s a lot of hype and hubbub, some of which can be validated, and some of which just sucks. Many investment advisors, stock newsletter authors, market pundits, and so forth want you to believe that making money in the stock market is some elusive enigma that the “common man” simply cannot decipher. I’m telling you right now, it’s actually one of the easiest avenues for wealth creation that exists, IF you know what you’re doing.
The test that most people fail is the test of simplicity. They’re looking for some mega-complex methodology with thousands of charts, indicators, prognosticators, and basically everything in the investment bag of tricks known to man. Truth be told, penny stock investing really doesn’t require a whole lot of mental gymnastics, just some basic understanding of chart patterns and a little bit of guts, or chutzpah, or whatever you want to call it. Simply put, you cannot be fully risk-averse and expect to do well in the markets. You will get slaughtered, and the interesting thing is, you’ll be slaughtered by your own lack of patience and your own emotional ties to money. But…that’s another subject for another time.
Please be advised that I do NOT consider myself, nor purport myself to be ANY kind of financial advisor, or investment advisor. I’m just a guy that failed enough times in the markets to finally understand how they work. This is why I say, if you can’t stand the “sight of your own blood”, so to speak, or in other words, if you can’t stand the thought of losing money, DON’T get into the markets. You will SUCK at trading penny stocks (or any other type of stocks for that matter) if that’s your attitude. This does come with an unavoidable level of risk, and if you are not mentally ready for that risk, then it’s better to leave it entirely alone altogether.
I have traded (and do trade) in what is considered to be one of the most risky areas of stock investing known to man—the OTCBB (Over the Counter Bulletin Board) stocks. These stocks, along with the Pink Sheets stocks (I’ll explain them in another post), are widely considered to be the “Wild West” of the stock market investing world. I don’t recommend them to the stark newcomer—you have to develop “nerves of steel” to some degree to withstand the pressure and volatility that can come with this class of stock investing. Stocks in the OTCBB arena often get de-listed, or trading for the stocks can be halted, or delinquent filings for the SEC get reported, so there can be quite a bit of shady activity driving the prices of these stocks. For those that do not understand how to trade using price charts, this can be a major mine field, but for those that have a good working knowledge of how to trade based on chart patterns with a high probability of success, it’s a world of opportunity.
You really only need to look for two main things with any penny stock you happen to be zeroing in on: Number one, look for a stock whose chart displays price action that seems “dead”—what I mean by that is, there’s a long period of time where the stock’s price trades within a fairly tight trading range…this will all be based, of course, on the price of the stock, and can better be measured by a range of percentage of the price instead of just the actual “tick value” itself. For instance, a tight trading range for a stock that’s trading at $0.25 a share could be anywhere between $0.20 and $0.30. Think about it: If the stock is trading at 25 cents a share, five “ticks” up or down adds or subtracts roughly 20% to the value of that stock. So a move down to $0.20 means that you have a 20% loss in the value of the stock, and a move up to $0.30 means that you have a 20% gain in the value of the stock. These are actually huge percentage swings, but in the world of penny stock investing, this is somewhat the norm, and could easily be seen as a tight trading range.
Unfortunately, I have to run, because I have some personal business to attend to, but this time I actually will pick up where I left off and give you the other primary thing to look for when you’re looking to buy penny stocks. Stay tuned until then...
The test that most people fail is the test of simplicity. They’re looking for some mega-complex methodology with thousands of charts, indicators, prognosticators, and basically everything in the investment bag of tricks known to man. Truth be told, penny stock investing really doesn’t require a whole lot of mental gymnastics, just some basic understanding of chart patterns and a little bit of guts, or chutzpah, or whatever you want to call it. Simply put, you cannot be fully risk-averse and expect to do well in the markets. You will get slaughtered, and the interesting thing is, you’ll be slaughtered by your own lack of patience and your own emotional ties to money. But…that’s another subject for another time.
Please be advised that I do NOT consider myself, nor purport myself to be ANY kind of financial advisor, or investment advisor. I’m just a guy that failed enough times in the markets to finally understand how they work. This is why I say, if you can’t stand the “sight of your own blood”, so to speak, or in other words, if you can’t stand the thought of losing money, DON’T get into the markets. You will SUCK at trading penny stocks (or any other type of stocks for that matter) if that’s your attitude. This does come with an unavoidable level of risk, and if you are not mentally ready for that risk, then it’s better to leave it entirely alone altogether.
I have traded (and do trade) in what is considered to be one of the most risky areas of stock investing known to man—the OTCBB (Over the Counter Bulletin Board) stocks. These stocks, along with the Pink Sheets stocks (I’ll explain them in another post), are widely considered to be the “Wild West” of the stock market investing world. I don’t recommend them to the stark newcomer—you have to develop “nerves of steel” to some degree to withstand the pressure and volatility that can come with this class of stock investing. Stocks in the OTCBB arena often get de-listed, or trading for the stocks can be halted, or delinquent filings for the SEC get reported, so there can be quite a bit of shady activity driving the prices of these stocks. For those that do not understand how to trade using price charts, this can be a major mine field, but for those that have a good working knowledge of how to trade based on chart patterns with a high probability of success, it’s a world of opportunity.
You really only need to look for two main things with any penny stock you happen to be zeroing in on: Number one, look for a stock whose chart displays price action that seems “dead”—what I mean by that is, there’s a long period of time where the stock’s price trades within a fairly tight trading range…this will all be based, of course, on the price of the stock, and can better be measured by a range of percentage of the price instead of just the actual “tick value” itself. For instance, a tight trading range for a stock that’s trading at $0.25 a share could be anywhere between $0.20 and $0.30. Think about it: If the stock is trading at 25 cents a share, five “ticks” up or down adds or subtracts roughly 20% to the value of that stock. So a move down to $0.20 means that you have a 20% loss in the value of the stock, and a move up to $0.30 means that you have a 20% gain in the value of the stock. These are actually huge percentage swings, but in the world of penny stock investing, this is somewhat the norm, and could easily be seen as a tight trading range.
Unfortunately, I have to run, because I have some personal business to attend to, but this time I actually will pick up where I left off and give you the other primary thing to look for when you’re looking to buy penny stocks. Stay tuned until then...
Sunday, June 1, 2008
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.
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.
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