Trading Trends of Penny Stocks
Risk vs Reward
Trading trends create trading risks for most traders of penny stocks:
While all stocks are subject to huge share price swings, penny stocks are far - FAR - more prone to major percentage moves on single pieces of news that not infrequently cause share prices to double or more, or lose double or more of their value in a matter of seconds, minutes, hours or days.
Such huge swings in share prices are the most common trading risks for most investors who don't know when, why, how or what to expect. Technical indicators, signals, patterns and programs are of little help in understanding or predicting such rocket stock trends.
How to avoid the risks of Trading Trends. . .
Invest only in a penny stock you have fully researched in the way this site is teaching you. After a complete research, you must have total confidence in your stock of choice, that it is trading at a bargain and has the greatest potential to explode in value soon.
You must be willing and able to take the time to watch for any changes in fundamentals and technical patterns. If you do this then
• you will avoid the risks of trading trends that most other traders take.
• you will consistently profit from the huge share price swings that stump most other investors.
Remember, Complete Fundamental research, as this site is, and will, show you must confirm any technical triggers you may see to be of value to you in trading trends in penny stocks profitably. Complete fundamental analysis is extremely vital to avoiding all trading risks.
Trading Trends successfully requires that you always buy shares of any high potential penny stock at bargain prices.
Buy the Sleeper Stocks.Do not buy shares of stock that marketeers are already feverishly promoting like most other traders do. You will know this is happening if the share prices have recently trended up along with some hyped up media news, and a hot stock pick in your email box, about the stock and company.
Bargain prices are determined by historical share price data on the chart coupled with solid fundamental research. In this way, you determine the quality of the company and its potential to become a rocket stock. You can bet that marketeers prize such penny stocks for their promotions.
OTC BB Rocket Stocks:
Far more so than on the NASDAQ, shares of stock trading on the OTC BB are generally more thinly traded (lower market cap and lower volume of shares being bought and sold). It wouldn't take much buying or selling of shares to make their prices surge higher or lower by 30% to 300% in a very short time - minutes, hours or days.
Most stock traders will not research or follow OTC stocks until marketeers and media begin promoting it. Technical data, therefore, does not give enough advance warning to plan trades involving rocket stock trends.
Many penny stock traders are stumped by such seemingly erratic quick swings in share prices. So trading trends of rocket stocks create extreme trading risks that could easily wipe out a trader's entire life savings in a short time if he is on the wrong side of the trend. This happens too often, especially when traders try to buy into, or short, a rocket stock trend already in progress.
The Extraordinary Investor does not have to worry about the erratic swings of trading trends, because such investor is already invested in the stock before it is promoted and discovered by marketeers and thus, before most other investors hop on for the ride at inflated prices.
Nano-Cap stocks that trade for pennies to fractions of a penny create the most powerful trading trends. Individual investors are likely to buy and sell huge lots of shares ranging from 100,000 to millions of shares for less than $15,000 giving the false impression that adequate trading activity exists to trade shares.
Always compare trading volume with price per share, the public float of shares, and market cap to determine how much you could invest in such stocks and still be able to sell them if things do not go as planned. Trading activity can easily be observed on stock charts using simple price and volume indicators.
One bit of exciting news could send share values of such stocks over 200% in value easily creating enough trading volume to sell a larger number of shares.
Trading trends of stocks with a Market Cap of below $10 million creates serious trading risks for most investors
Market Cap is defined as the number of shares outstanding multiplied by the value of each share.
• Not enough trading liquidity is available on such tiny capitalized stocks to insure you will be able to sell the shares you bought if the stock does not explode.
• In addition, such low market cap is a red flag that such a company will not likely have the financial leverage to deal with much debt, nor will they likely be able to garner much investor interest.
Therefore, such company will not be able to complete its development and exploration of products before it goes into huge debt and folds. Most investors will know this, so they will avoid trading such companies even if the product(s) in development are exciting.
• As well, such a low market cap stock may indicate that the stock is not as super as you think. Do a more complete search to be sure you have the winner you think you have. Do a more thorough research on its products in development and its competition.
Any trades made on such stocks should be short term and watched carefully for news about insolvency or bankruptcy.
Trading trends of nano-cap stocks between $15 million and $75 million market cap offers the greatest potential rewards if and when they become rocket stocks. The only way to be ready for such a move is to do a thorough ongoing fundamental search of that company. Technical data will not clearly forewarn that a rocket stock trend is imminent.
High quality potentially Explosive Trending Stocks possess the following characteristics:
• Novel highly profitable product developments that are safe and have the potential to create great public, government and investor interest as they become aware of the company
• Patents that are good for 10 years plus
• Products in development that appear better than what already exists to meet solid demand.
• Experienced thrifty leadership
• Powerful allies, collaborations, partners
• Has solid government and public interest
• At least 6 months of beneficial financing in place
• No reverse stock splits recently or foreseeable
• No huge outstanding debt that must be paid up soon
• Little to no marketeer involvement
• Over 10 million market cap
• Has at lest three years of history as a company.
• Be extremely suspicious of Pink Sheet stocks because those are the stocks most targeted by the most vicious marketing scams. The siren call of marketeers can easily hypnotize you to buy shares - even up to your life's savings - if you are not aware of how they work. This site reveals this to you.
All of these fundamentals and more are essential pluses that offer exciting low risk investment possibilities for such stocks - especially short term.
The ability to obtain financing is critical for nano-cap penny stocks. Seeing this is the case, such financial data is critical to the Extraordinary Investor. . .
You do not want to be stuck holding a great stock that is unable to obtain acceptable financing or has total debt that is overwhelming in comparison to total assets. The debt of a penny stock is overwhelming if
• recent SEC financial reports paint a dim picture
• the market cap is under 10 million
• the financing in place is unrealistic
• the debt must be paid soon
• not likely to obtain financing or additional financing (no good financing partners in place)
• debt is over 3 times the value of assets
Such a company is distressed and will unlikely continue operating sometime in the not to distant future. That is how you avoid negative trading trends that would otherwise eat away at your principle.
Two types of trading trends create risks
1. Rolling Stocks or Cyclical: These types of price swings in shares have a more steady or cyclical pattern that can be used by high risk investors to make profits by buying and selling at the right time.
Obviously, the cyclical pattern will not last forever and may end sooner than later depending on many variables. Trading trends of cyclical patterns creates trading risks that are easily avoided by the Extraordinary Investor.
The Extraordinary Investor does not gamble on technical patterns and trends; rather, they do their research on the company and surrounding data regarding the company and its segment of the market. Such investors will invest in stocks at a historic low in price and before they are feverishly promoted.
Trading trends that are cyclical can be profitable only if the cyclical pattern is accompanied by a thorough fundamental analysis of the health of the underlying company.
If the company behind the stock has exciting products in development, positive data, and does not appear to be going into bankruptcy soon, its a good bet to buy when the cyclical pattern hits a low and sell at its high.
Such buying and selling on cyclical trading trends could be done repeatedly making 3% to 10% profit each time. The cyclic trends may occur every 2 or 3 weeks. The profit potential is real.
If all looks well with the fundamentals, then at some point, once you buy at a low on the cycle, the stock will finally rocket past the highest point on the cycle and continue upward for a short term explosive move - maybe 10% to 30% or more.
Trading trends that are cyclical are enticing and seems easy. But, just like stealing, sooner or later, and more times than you think, you will get caught on the wrong side of the trade and lose out unless such investor fully understands the company behind the stock.
2. Rocket Stock: In these type of trading trends the value of shares shoots up or explodes quickly for seemingly no reason. About 97% of investors lose out on such super moves by either missing the ride altogether, or trading such stocks after they already begin to rocket up.
But for the investor who knows what to look for, will already have bought shares before the stock rockets to new highs. This is how the Extraordinary Investor consistently profits from Rocket Stock Trading Trends.
For those investors who know what to look for and do their homework will be rewarded with 30% to 500% likely profit off of one or more rocket stock trends within minutes to a few days, weeks or perhaps a month.
Only 3% of investors will likely use the kind of knowledge revealed in this information on demand site to double and triple their investments over and over from such trading trends. This is a simple process to learn and utilize, but is overlooked by 97% of investors.
Risk vs. Opportunity: Remember always that the risks of trading trends for 97% of investors are opportunities for you to profit from their risk 60% to 97% of the time because you are already invested in such stocks before explosive trends begin.
Thinly traded stocks are trading risks for most investors in many ways: Thinly traded stocks have a low volume of shares traded either for a specific day or days, or a continuing phenomenon. Most thinly traded stocks are on the OTC.
A high potential sleeper stock that is presently thinly traded will eventually be marketeer promoted. When that happens, that penny stock will no longer be thinly traded, but will become a rocket stock usually for a short time. This site is showing you how to identify such stocks before they become rocket stocks and profit tremendously time and again.
REMINDER NOTE ON: Bid, Ask, Spread, Liquidity, Market Cap
bid price is the highest price that a bidder is willing to pay/buy per share.
ask price is the least amount a seller is willing to except/sell per share.
spread is the difference between the bid and ask.
Liquidity: In a micro-cap stock, liquidity will likely be greater than in a nano-cap stock because of the likeliness of a greater volume of shares changing hands. In this case, enough volume of trading (buying and selling) exists without causing share prices to rocket up or plunge. In other words, the more sellers that exist to handle buyer demand the slower the share price will rise or fall. That is liquidity.
Market Cap is the total market value of a company's outstanding shares.
The trading trends of penny stocks come with great risk for most investors.
Dud stocks promoted by Scamsters
The most obvious risk to many small traders is being hypnotized by the siren call of professional marketeers (scam artists) to invest in dud penny stocks - basically shell companies.
Seven (7) Risks of trading trends in potential rocket stocks
Besides the most obvious risk of holding shares of scam promoted shell companies, trading trends are risky for seven other good reasons as follows:
1. Not enough trading activity for consistent buying or selling to take place. In other words, not enough volume of shares being traded to insure you can sell if news turns bad.
You will not have to worry about this risk if you screen your stocks well. The stocks you choose as your potentials should also have adequate trade activity (liquidity) or will have sufficient trade activity once the good news becomes known and the stocks begin to explode in value.
Note: You must calculate the likeliness of selling your shares when its time. So keep your investment in such stocks realistic. Keep your sell order realistic.
2. Spreads can create trading risks: A spread is the difference between bid and ask prices. Very few or no traders may want to bid (buy) shares at the price other traders want to sell them at (asking price) at a given time creating low or even no trading volume for a period of time. Spreads do not last forever, and they are frequently broken when traders sell at a lower price then the spread.
Such spreads create choppy swings in buying and selling activity as seen on stock charts as bid and ask prices are hit by buying and selling activity at those spread values.
Many traders holding such stocks get nervous when such spreads occur and sell too early or give in and buy too high. Other traders may have too much money invested in the stock and cannot sell without taking a big loss.
Many reasons could exist for such spreads, but has much to do with the market makers, since OTC stocks trade on a broker-dealer market. Such spreads are more common in nano-cap stocks under $15 million. Full research will identify reasons for such spreads.
Huge spreads do not last forever, so set an order to buy at a predetermined price that is acceptable despite the spread. The market maker will likely break down and sell shares to you. You will likely get filled, and it won't take long.
Choppy Trends occur for other reasons besides a huge spread between the bid and ask price of a stock.
Choppy Trends are like cyclical patterns in trading activity, as discussed earlier on this page, but occur very quickly - within days.
Many traders see the choppy trends on stock charts and feel they could be profitable trading trends. Profitable trades can be made from such trends by:
• first making sure the choppy action is not created by the spread between the bid and ask price.
• finding the bottom price per share that will not likely be crossed - a strong resistance.
• conducting a complete fundamental analysis of the company to avoid the risks of trading trends that are choppy. Such analysis will reveal if the company is worthy enough to prevent share prices from plunging much below the lowest resistance. This still comes with risk, because choppy price action means that speculation is high.
• buying shares at the lows and selling near the top resistance.
If you miscalculate, the most likely scenario is that the share prices will rocket past the top resistance and you will make more profit than you figured. And that is a good thing when trading trends that are choppy.
3. "After hours" trading in thinly traded stocks could easily lead to the price of shares to gap up or down 20%, or much more on the next trading day on almost any kind of good or bad news. You would usually be aware of the potential risk before it happens if you did your homework. Even so, on the next day's trading, the gap will most likely correct itself.
In the case of bad news . . .
• Maybe the company could not obtain the financing it had hoped for...
• Maybe an FDA phase testing of a new product being developed turned out to be unsafe or not very effective.
• Maybe the company is facing a lawsuit or has received word of being delisted.
• Maybe a basher campaign begins and is deliberately creating seemingly ominous reports in an attempt to bring the share price down so he can invest in it at a low price.
• Maybe a recent quarterly SEC financial report reveals disturbing financial issues that may cause the company to become insolvent.
NOTE: If you are considering trading a great stock that is speculative, always search for the latest SEC quarterly and annual report. Read those reports. Determine when the next quarterly report is due. Other traders may not do a very thorough study of fundamentals, but they do look at the financial reports and act accordingly.
If financing is a problem for your target stock, then think of how that information will affect the next quarterly SEC report. YES! The stock price will dip or even plunge even on a stocks trading at historic lows.
Trading risks are hard to prevent when the bad news or good news is posted after the market closes: You will not be caught by surprise by trading trends in a good stock if you keep yourself informed of news that leads up to that final piece of news that sends the shares soaring or falling off a cliff. You can then make a plan of action to limit losses while taking advantage of potential good or bad news.
For instance, you could place a limit sell order just in case the after hours news is bad. The stop order will not guarantee you will be able to sell at the price you desire though IF the stock plunges. That in itself is an educated risk.
You will have to determine for yourself the best plan of action based on all available data. I have found though that, if a stock price plunges at the beginning of the next trading day, that, many times, the price will quickly shoot up one last time before continuing a downward trend if the fundamentals show disturbing news.
Why does this happen? The price shoots up one last time, because naive traders quickly buy shares at what they feel is a buying opportunity. They do this without proper research. So, never use a market sell order. Rather, set a realistic limit sell order that accounts for that future spurt up in share prices. This will be a very quick spurt; so, placing that order ahead of time is imperative.
4. Times will exist when you will have to watch the fundamentals of a company like a hawk - like every minute. When? Those times when you are waiting to see news that could come out any moment regarding company potential funding or partnership, delisting, a pending outcome of a lawsuit, pending bankruptcy, FDA approval, etc.
I will let you in on a secret. . . I usually do not wait for the reports or news to come out; rather, I invest in a stock BEFORE the news. I invest like this based on my best prediction of the outcome of all previous knowledge I have gained about the company by studying its fundamentals. Remember too, that I invest when the shares are already trading at an historic low.
All these types of news just listed could end very positive creating a rocket stock trend, or could end very negative, causing the shares to plunge. . .
Such investments do pose higher trading risks for the Extraordinary Investor who invests before the news comes out. But the rewards are so great when trading a potential rocket stock trend on the anticipation of good news that it really is worth the risk. This is only true if the shares of such high potential sleeper stocks are purchased at one of the lowest points historically - bargain prices.
Reading Between the Lines is an important skill or talent that will grow as your experience trading correctly grows. Then you will profit more consistently from such circumstances. You will know what the most likely news will be when it finally comes out.
5. You will find super stocks with exciting unique products in development and solid relationships with other biotech companies or VIP agencies. Trading trends of such stocks can be exciting. Even so, such stocks may also be facing possible delisting or bankruptcy (unless it can receive funding) or other such negative news creating trading risks even for the Extraordinary Investor.
The Extraordinary Investor will attempt to read between the lines of fundamentals to determine the power of the risks or determine if such risks are worth investing at all.
Experience in reading between the lines can pretty accurately determine that such a company will likely obtain financing, be bought out, or obtain a partnership with another company or firm with huge pockets, etc.
A good strategy may be to buy shares and place stop orders on the stock so that if no good news is forthcoming, you will likely have sold the shares on your stop order. That is one risk you take. The risk will be minimal if you are buying shares at already all time lows even if the bad news comes out in after hours trading.
NOTE: Trading trends of stocks that are already trading at all time lows is vital to escape the risks most others take and to be prepared to reap profits from future marketeer campaigns. Marketeers also search for such stocks to promote.
If positive news on financing occurs and the share prices are at all time lows, then you can easily earn 30% to 300% of your investment within an hour, a day or within a few weeks. Depending on the circumstance, you may want to sell near the top of the first major spike in share prices after positive news comes out.
So the risk may be worth purchasing shares of such a stock that has such super potential since financing is more likely to occur for such a high potential stock with interested parties.
While the loss is likely minimal when the quality penny stock is already trading at all time lows, you will have to compare this with just how good or bad fundamental data is for that stock.
6. The spread between the bid and ask prices of a thinly traded stock create trading risks for impatient traders. The spread between bid and ask prices could easily be 10% or even 20% of the share value, or more, making such a share purchase undesirable to most investors.
Spreads between bid and ask prices change constantly. Stand firm on your target entry price of purchase based on your research and you will find that most times your order will be filled within several days - likely still enough time before the crowd of other investors find out about the good news you discovered regarding the company you are attempting to invest in. Once the crowd invests, plenty of trade activity exists for you to sell shares. The spread will diminish as trading activity escalates.
7. Price swings on such thinly traded stocks are tremendous (20% to 300%) on large or even small increases in trade volume. Risks are greatly minimized and profits are most likely if you understand the company and its fundamentals and buy at bargain prices.
What can we learn from trading trends and their risks?
• Do Your Homework just as this site is revealing to you.
• Cyclical trend or choppy trends are trying to tell you something, whether good or bad. Find out why traders are so nervous. Maybe you could have overlooked some important news. Any activity in trading is a sign that something is happening.
• Always buy shares of a super high potential sleeper stock at bargain prices, which will help you avoid or limit most trading risks of trading trends and set you up for a potential rocket stock trade. You determine bargain prices by viewing historic prices on the charts coupled with solid fundamental data regarding the quality and potential of the company underlying the stock.
• Search for and invest in super sleeper stocks that are trading at all time lows, have not trended up recently, and with little to no marketeer promotions - get in before all that happens and you will be positioned to double your investment!
You have completed this lesson on Trading Trends of Penny Stocks - Risk vs Reward.
When you are ready. . .
Penny Stock Gambling