Penny Stock Guide Disclaimer The information provided is not to be considered as a recommendation to buy certain stocks and is provided solely as an information resource to help traders make their own decisions. Past performance is no guarantee of future success. It is important to note that no system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using Penny Stock Guide will provide information that guarantees profits or ensures freedom from losses. We shall not be liable for any errors in the content, or for any actions taken based on the content. http://www.stocksunder1.org Copyright 2017 StocksUnder1.org, All Rights Reserved.
What are penny stocks? There are different types of penny stocks that traders talk about. Some considered penny stocks as any stocks that are currently trading below $5, some consider anything $2 as penny stocks. These stocks are trading on NYSE, NASDAQ or AMEX. However, there is one more kind of penny stocks that traders talk about. They are called the Over The Counter penny stocks. These stocks are not listed under NYSE, NASDAQ or AMEX. The over the counter market, also known as OTCBB (Over The Counter Market Bulletin Board) which is a regulated quotation service. At stocksunder1.org, you will find both OTCBB penny stocks and the penny stocks that are trading on NASDAQ or NYSE. However, OTCBB data is end of day data where as the other kind is updated every 15 minutes during intraday trading. We list all penny stocks on our site and you have the ability to find penny stocks that are currently making moves, or about to make moves. Penny Stock Risks Penny stock is a big market where traders want to take advantage of. What many doesn t realize is the risky involve in it. True, you can double or triple your money in a month or even a few days, but it is also true that you could lose all your money in a few days. There are newbies who want to get rich overnight with penny stocks, chances are these newbies will likely to fail. In order to trade penny stocks successfully, you need to learn how to do research and spend a lot of time learning from others as well as through your trading experiences. It is highly advisable that you get mentor if you are completely new to trading. Penny Stock Screener 1
Penny Stock Pros and Cons Pros the pros of trading penny stocks is that you can get rich quickly if you trade the right penny stocks. Cons the cons of trading penny stocks is that you can go broke quickly when you buy the wrong penny stocks. Also, you will have to buy a larger amount of penny stocks to offset the bigger transaction cost of trading penny stocks. Some penny stocks are highly illiquid so that you may have to pay an even higher commission when you look for a buyer or seller. Therefore, you should always make sure the penny stock that you are trading with has enough daily trading volume to start with. As you can see, there are more cons of trading penny stocks than pros. Therefore, you must learn how to trade penny stocks in order to make a good profit and learn from an experience trader would definitely help. The price you pay for mentors will get paid off fairly quickly when you invest in the right penny stocks as they can go up 100% overnight, and you may double your money with one single trade. What drives Penny Stock Prices Penny stocks can easily move in one direction with big percentage gains or losses. When the demand is greater than supply, you may see 100% or even 1000% gain in one single day. On the other hand, when the supply is greater than demand, you may see 100% or 1000% loss. So what drives supply and demand? Why does the demand go up so quickly? There could be many factors and here are two of the main ones. 1. Good News The company may report good news such as earnings report or if the company signs a new contract with a big client. The Penny Stock Screener 2
company could announce share buyback or insider buying. These are great news that will drive up the price of the penny stock. When a company gets new patents or reversal merger, the stock price will definitely go up as these are all good news for the company. 2. Stock Promoters The penny stock price may go up tremendously if a company is pumping and dumping the stock. pump-and-dump is a term to describe an illegal trading strategies used by some big investors. A big investor or a group of investors have the ability to drive the price of a penny stock up or down because penny stocks are cheap and usually with low volumes. These investors first load shares of a penny stock and then promot the stock as a hot stock or stock tip to small players like you and me. After the small investors jump in, these big investors start to unload their shares, hence the penny stock will go back down. They make money by selling their shares to the small investors who loaded their shares base on their stock tips. This is called the pump and dump strategy. You must be really careful not fall into these traps. Penny Stock Trading Strategies 1. Trade Trending Stocks One strategy to use to trade penny stock is to buy low and sell high. You can look for trends of a penny stock and see if it is trending higher continuously. If it is, then buy it. Often times, a penny stock will form some kind of trend and it can last for a long time. You want to jump into these trends early so you can buy it at a low price and sell for a higher price at a later time. You should learn how to look at their charts and see if you can recognize winning patterns. If you are not familiar with technical analysis, I recommend you to study that and apply it to penny stock charts. Penny Stock Screener 3
2. Buy on dips Another strategy to use is buying on dip. A dip is when a stock drop and then starts to recover. A penny stock could drop or drag down by other similar penny stocks in the same industry. If a stock went down because of news unrelated to itself, there is a good chance that it will go back up. Hence, you can buy the stock on dip and get a good profit when the stock go up to its normal price. 3. Trade Low Market Caps You can also buy low market caps companies. A company could be low caps for many reasons. One of the reasons is that the company is new or it is not known to a lot of investors. You can pick up quality penny stock companies in their early stage and when it starts to attract large investor interest, you will see your shares appreciated. You can then sell for a profit or continue to hold depends on the market condition. However, keep in mind this is a risky approach if you don t do it right. The following conditions must be met in order for you to buy these companies. 1. You must research the company thoroughly and make sure the products or services it offers has market potential. 2. You should not blindly select any company with low caps and invest in it. 3. You should know the industry very well and hence you judge whether or not their products are hot. 4. Buy Stocks You Know You can buy penny stocks in an industry where you are good at or know a lot about. For example, if you are IT guy, you may want to look for technology related stocks. If you are an accounting person, you may want to look for bank stocks or financial stocks. This way you can buy stocks with lower risk because Penny Stock Screener 4
you know what they are selling and know the potential of their products and services. If you buy stocks in an industry where you know nothing about, you will have to do a lot more research and hence spend a lot more time. Also, it is easier for you to pick penny stock winners in an industry that you know a lot about. 5. Buy High Volume Penny Stocks You can buy penny stocks with high volume. These penny stocks are generally safer than the ones with low volume because they are a little harder for one investor to manipulate the stock price. Also, usually high volume stock means there are more investors interested in buying the stock so it is a good thing because you can buy and sell them more easily. If you buy a penny stock with low volume, sometimes it is hard to find a buyer or a seller at the price you set, so you are force to raise the price when you buy and lower the price when you want to sell which is something you don t want to see. Penny Stock Rules Penny stocks are risky and if you want long term success trading penny stock, you should follow your trading rules all the time. Stop Loss You should set stop loss for every penny stock you trade. I recommend to set somewhere around 20% so in case you are wrong on a stock, you still have money to invest for the next one. Also, you don t want to set your stop loss too Penny Stock Screener 5
tight as a penny stock can easily go down and hit your stop loss frequently. You don t want to get stop out only to watch it go back up after you stop loss is hit. Use Limit And Stop Loss Orders You should always use stop loss orders and limit orders to buy and sell stocks. If you want to buy a stock at $0.25, you want to set the limit order so that you can get it for that price. The reason you don t want to buy with market order is a penny stock can move up quickly and by the time you execute your order, you may buy it for $0.3 or even higher. This is not what you wanted to see. Make your own decisions You should make your own decisions whenever you buy or sell a penny stock. You should not listen to gurus or anybody else. You can get trading ideas from them, but you should then do your own research and trade independently. Don t chase a stock Never try to chase a stock. If a penny stock jump 100% or more in a day, don t chase it, let it go. True, the penny stock may continue to go up, but there is a good chance that it will go back down. Remember, there are always better penny stocks out there that you can trade. The penny stock will never run away. Learn from your mistake If you make a mistake once, try not to make the same mistake twice. Instead, learn from it. Keep a trading journal Keep a trading journal with all your buys and sells and study them. You should also study the market everyday and try to learn how it acts. The more you know, the better you trade. Penny Stock Screener 6
Do not trade money for emergency use Never trade with the money that you need for emergency use. If you need the money for retirement, don t trade it. If you need the money for your kids to go to college, don t trade it. If you need the money to pay your bills, don t trade it. You can only trade with the money you can afford to lose. How to Trade Penny Stocks Here's a strategy that I have been using to trade penny stocks for a few years with decent results. I only trade penny stocks that are listed on the major stock exchanges such as NASDAQ and NYSE. I don't trade OTC penny stocks or Pink Sheet penny stocks because they are way to risky. The most important lesson I learn about penny stock trading is that in order to make money consistently, your mindset is much more important than your trading strategy. Most people lose money trading penny stocks because they don't have the right mindset. People trade penny stocks because they want to get rich overnight. They see a penny stock that's making a 100%, 200%, 500% or even 1000% gain in a short period of time, and they thought that's the norm. In reality, penny stocks go bankrupt on a daily basis and many get delisted from the major stock exchanges or moved to the OTC market. If you are holding one of those stocks, your stocks will go down and you may lose all your money. So what's the right mindset? The mindset is that you will never try to get rich with one stock or a few of them, and that you are not going to get rich overnight. Your goals is to make consistent and smaller gains for each penny stock you trade. It is much easier to make a 20% gain on 5 penny stocks than one penny stock with a 100% gain, yet they achieved the same results. You will also need to learn that Penny Stock Screener 7
it takes a lot of practice and study of stock charts in order to make this kind of gains consistently, it doesn't just happen overnight. Before we go on to penny stock trading strategies, I just want to make sure that you understand this is not an article on how to invest in penny stocks, so I won't talk about any fundamental information such as income statements, earnings report, revenue and sales growth because they are irrelevant to my strategy. I will only focus on the technical analysis which is about stock chart setup, price and volume movement of the penny stocks. Penny Stock Strategy Now we got the mindset out of the way, let's move on to the penny stock strategies that I'm using. First, I build up a list of penny stocks to watch with the following criteria. 1. Penny stocks that are trading in the range of $0.8 to $5 and trading on the NASDAQ, NYSE or AMEX exchange. 2. The penny stocks must have a single day where it spiked over 30%, and at least a 80% gain over one or multiple consecutive days within the past 20 days. In addition, the trade volume must be at least 8 million on the spike day and it should be much higher than the average trade volume. In other words, the penny stocks have to spike with unusual high volume. 3. The penny stocks are now falling over 40% from their recent high with low trading volume, much lower than the day it spiked. This is very important. I will now watch these penny stocks on my watchlist and wait for them to drop over 50%. If I like the stock chart pattern, I will put a limit order to buy the penny stock. Since the trading volume is much lower now, sometimes it might take a while to get my orders filled. Also, I put a limit order to sell my stock as soon as I bought the stock. The limit order is for profit taking and my goal is 20% for each trade, I use mental stop loss in case the trade goes wrong. When a penny stock Penny Stock Screener 8
gap up, I end up making more than 20%. I made 35% on a recent trade and then another for 55% gain when they gapped up the next day. Let's look at some of the stock charts for my winning trades recently and discuss my penny stock strategy in more details. 1. HTGM - The stock spiked with huge volume on 3/24 with an intraday high of $13.25. The stock then dropped over 40% with low volume the next few days, so I added to my watchlist. I bought the stock at $5.35 on 4/5. Unfortunately, my order only got filled partially that day meaning there weren't that people selling at that level by the time I setup my limit price to buy the stock. As soon as I bought the stock, I put a limit price to sell the stock for 20% profit from my entry price. Guess what, the stock hit my 20% target the next time and I sold my shares. The stock went much higher after I sold my share and then retraced. Note, I didn't sell the stock at a higher price but it doesn't bother me at all because I knew it is much easier to hit 20% than 50%. You will never be able to predict the high of the day, don't let your emotions such as greed take over you. Penny Stock Screener 9
2. ZAIS - The stock spiked over 30% on 2/14 with huge volume and then it retraced the following few days with very low volume. I added the stock to my watchlist when it dropped over 40% and then bought the stock at $2.36 on 3/20. Again, I set my limit price to sell for $2.83 as soon as I bought the stock. The stock continued to go down after I bought it and then it gapped up on 3/24, 3 days after I bought the stock. The open price was much higher than my limit price and I ended up selling the stock for $3.64 with a gain of 54%. Again, the stock kept going up after I sold my stocks before retracing. Imagine if I were to keep holding the stock, my profit would have been erased in the next few days. Remember, there is usually only one chance to sell, if you missed it, you may Penny Stock Screener 10
turn a winning trade into a losing one. So always set a limit order to sell your stock, so that you don't have to watch your stocks all the time. 3. INNL - The stock made a move with huge volume on 3/13 and then it made another high of $2.58 3 days later on 3/16. Note, my 40% and 50% rule is based on the highest price of the recent stock price so it would be based on the $2.58 on 3/16. The stock then went down the next few days with much lower volume. I ended up buying the stock at $0.99 on 3/27 and sold it 2 days later for $1.33. Again, the stock gapped up and I made 34.4% which is more than the 20% limit price I set. Few days after I sold the stock, it was trading at almost $2.5 which is over 80% more than the price I sold. Like I said, it doesn't bother me at all because I made a profitable trade. Penny Stock Screener 11
Note, I don't automatically buy a stock when it dropped 50% from the recent high, I would study the chart and try to get in as cheap as possible. Of course, that means I would often miss some profitable trades, but it also prevents me from entering bad trades. 4. ZSAN - The stock made a big move on 2/13 with over 40 million trading volume, and then it made a new intraday high 4 days later at $3.54. In the next 10 days or so, the stock retraced over 40% with low volume and I added to my watchlist. I bought the stock on 3/20 at $1.65 and sold it 3 days later for $1.99 for a 20.6% gain. The stock kept dropped right after I sold and never came back up for the next month. Therefore, it is important to always follow your rules and set a limit price for profit taking right after you buy the stock. This way, you will never miss a chance to sell and also force yourself to be discipline all the time. Penny Stock Screener 12
When to Sell Penny Stocks You should always have a plan when you trade penny stocks. We already talk about profit taking earlier, let's now talk about stop loss. Whenever you buy a penny stock, you should have a stop loss in mind. Not every trade is going to work out no matter how good your trading method works in the past. Here are a few selling strategies that I use. 1. Stop Loss - My stop loss is 12%, so whenever a stock drop 12% after I bought the stock, I would sell it. Remember, 12% is a big stop loss to take when trading stocks. However, penny stocks are very volatile, so a bigger stop loss is required otherwise you are going to get stop out often only to see the stock turned around Penny Stock Screener 13
and make a big move. Stop loss is absolutely necessary, you don't want to have 1 or 2 losses that kill your account. Each trade is only one of the many thousand trades that you are going to make. The only way you can do that is to preserve your capital, and not let a few bad trades take away all your money. Remember a 50% loss requires a 100% gain just to get even, it is much easier to take a loss when it is still small. 2. Time Limit - My maximum holding time is 10 trading days. If a stock I bought doesn't make a move in 10 days, I'm going to sell it no matter how great the stock chart looks like. As I stated above, penny stocks are very risky. As long as you are still in a trade, you are risking your money. If a penny stock doesn't make a move quickly, I'm going to sell it and look for other opportunities. There are always going to be other penny stocks that matched my setup requirement, I don't want to tie my money to the ones that are not working. 3. Go up sharply and then retrace on the same day - If I bought a stock and it went up sharply in 1 day and then retraced on the same day, I would sell it immediately even if it didn't hit my target price. For example, let's say I bought a penny stock today, and it drop about 7-8% in 2 days, and then on the 3rd day, the stock moves up sharply to about 25% compare to the previous day (it didn't hit my target price yet because I was down 8% the past two days) and then it starts to go down, I would sell it immediately with a limit price. In my experience, the high of the day for that penny stocks is probably the highest price for this stock. There is a good chance the stock will keep going down the next day or even gap down. So I must sell the penny stock on that same day. 4. Chart Setup is broken - If I no longer like the stock chart, I would also sell it. For example, when the stock drops below the previous support but didn't hit my 12% stop loss yet, I would sell the penny stock anyway. Penny Stock Screener 14
Penny Stock Resources How to Find Penny Stocks You can find penny stocks to watch with the penny stock screener or 1. Android App - Penny Stocks for Android 2. iphone App - Penny Stocks for iphone Penny Stocks Webinar If you are new to penny stock trading or if you are an experienced trader and want to take your penny stock trading to the next level, check out Jason Bond's Webinar Learn How I Made $330,000 in 2016 Trading Stocks Part-Time. Penny Stock Screener 15