NEW: Live classes are posted - Click here to see the calendar!

Ep 37: Penny Stock Insight on the Stock Market

May 14th, 2015

Listen to the Podcast

Hey it’s Sasha Evdakov. It is May 14 2015 and today we're going to be discussing Penny Stock Insights. Now this is not a topic that I cover all that often mostly because I don't really trade a lot a penny stocks and there's a few reasons behind it.

I’ll some of those reasons in this video and just give you some insights but I still think it is important to study charts and find what it is you’re good at because certain things that even maybe that I don't focus on they may be applicable to you.

Similar to playing a sport and let’s use hockey as an example, for some people they’re great to be a center or a forward and for other people they may be better at a left wing, right wing or maybe a goalie so hopefully I mentioned the right positions I don't know that much about hockey.

The same concept applies in a lot of other sports, a lot of other areas in life is find what works for you and then go ahead and hone in and focus on that. So if penny stocks work great for you then focus on that and develop it, if they don't then you may need to try out a different strategy, a different position and approach things that way.

In this video I will talk about penny stocks and just some insights on why I don't focus on them that much but I do like studying their charts from time to time and just reviewing some other chars just because it gives you the practice and the insight.

It’s kind of like opening your mind up to another thing or concept, if you're always focusing on one specific thing you tend to get blocked and your mental capacity tends to not develop or evolve because you keep doing the same thing over and over again just like in life so you need to go out try new things, new restaurants you know try those weird fishy kind of food, and just kind of try new things to really develop yourself as a person.

I don't really trade a lot of penny stocks and this is why I don't post a lot of them but in general I still think there's some good things to learn from them. So for those of you that are interested in penny stocks we’re going to cover some insights today about penny stocks but will also cover one stock specifically more in depth that was a penny stock or is a penny stock, it’s cheaper stock.

I’m just going to share some insights. So even if you’re swing trading there’s still going to be a lot to learn from that because the concert will still be applicable if you’re swing trader for the overall trading concepts and principles because the concepts are still the same, the logic is still very similar it's just applying it to a different kind of focus.

With that in mind I did want to let you know I am finishing up the shorting book you know and that's one of my focus.  I'm also working on the penny stock book as well just was some different that I cared to study over the last year to pull some insights and just kind of compiling these things together.

The book really just helps me study the charts and that's just kind of me studying the charts and looking at them and allowing you to see the things that I've studied and looked at.

Probably we’ll launch some of those over the next month. Just having some things proofed on those but they will be coming out soon so just keep your eye on it. I don't rush my products or anything like that. It's just as they get involved and completed then that’s when we’ll release them.

2015-05-14-penny-stock-insights.0033

Let's get started with the penny stock insights here and we're going to be really honing in on the 1-800 flowers concept here soon but first before we get there I do want to cover some stocks that we've covered over the last week or in the past.

I just mentioned to you four to five different stocks that we've looked at and just some couple of them are in the critical charts as well but I've posted another handful of charts probably thinking about 15 charts in the critical charts this week, today actually.

If you’re critical charts member you can go and check those out but in either case I do want to talk about DATA, right here and this swing point right here was broken.

Broke out moving well and you can see here on the daily right here the stock broke out pull back a little bit and continues to hold up really well on volume. We do have that little gap there but overall this stock on the longer-term is looking pretty good.

2015-05-14-penny-stock-insights.0042

Next one CSX, I wanted to share with you that we're watching this line, got in it right here popped higher and once you start seeing this increase in volume right here you do want to make sure you peel some off in the strength because you know this stock could come back so you’re always taking profits in the strength.

2015-05-14-penny-stock-insights.0044

GT, also one right here on the weekly take a look nice solid line, crisp break, nice heavy volume right there you can you can see all that volume coming in the break. Here is your entry point and the stock continues to power higher.

Taking it out to the daily you can see multiple day gains and just moving really well.

2015-05-14-penny-stock-insights.0048

HubSpot as well, this one on the daily popped higher came back retested this and again moving a little bit higher. So just watch this one it's a little overextended here on this few day bounces so you want to see follow-through and continuation so it may take a little bit more time for a digestion or consolidation.

2015-05-14-penny-stock-insights.0051

Finally JetBlue recovered in the past over the last few weeks. Also here's the pop stock just continues, nice slow mover here and just continues to kind of head on upward. Again always peel some of the strength. Be careful with these engulfing patterns right here, it's not on heavy volume but it did pick up a little bit.

Just always watch your stops, watch how you're peeling off in the strength and take some profits.

More over today also Facebook when we hit the projected move which is something we'll be talking about here soon. When you hit a projected move you want to peel some shares off in the strength. So if you went short, this stock right here when it broke this line and you went short right there at that level then you continued to ride as it watch this swing point right here.

It came here played around for a few days and now it bounce. So any time we hit that projected move which is something we'll be talking about today you always want to peel some of the strength because these reversals can and do happen so you always want to protect your profits, protector your capital because of these kinds of things.

With that being said let's cover some penny stock insight. That's what I really want to focus on you know the market's overall are starting to break this little consolidation pattern. I mean we've been really isolating since December, almost at the same exact point.

2015-05-14-penny-stock-insights.0065

The S&P also the same thing if we break this on super heavy volume you know right now it’s 4:20 p.m. Eastern Time, so if we actually break this on more so volume, right now we did 84.3 million. I don't consider it a clean break until after it get up to about 213 - 214 levels.

We want to see a 214 and now would be considered a cleaner break and if it does it on heavier volume, let's say 175 million shares for the spiders or the S&P here, you want to see it there at the 2130, 2140 then all of a sudden you're talking in a different game where the stocks can go higher but typically summer months are slow, it’s a stock pickers kind of couple of months.

You're just nitpicking what stocks are going to go higher or lower and so trading activity in volume is usually lighter during the summer just because people go on vacation. It’s just the natural flow of human behavior and you know for me I do a lot less trading during these months.

Sometimes I’ll put on option options spread and other times I may not even trade on for a couple months until things are set up or unless I see a good opportunity.

I mean right now we have a couple little smaller positions but the volume is still not where I want it to be. I wanted to see also the market clearing certain points you know some of the other positions that we talked about we were getting and peeling some shares out of them.

You know relatively speaking you want to see things clearing really nicely on their brakes and we'll talk about that here in a minute.

In either case remember summer volumes it’s just weaker so it allows you to do other things. If you're an active trader it allows you to take care of other personal things maybe do some other projects then you can always get back into the markets later and you know put on some trades in the future.

Talking about some penny stocks let's just put a chart up just to discuss things. Normally with penny stocks and I'm just going to try to keep this under about 10 to 15 minutes, penny stocks are usually cheap and they're cheap for a reason.

Now for me I consider penny stocks something under 10 dollars for most. Other people it's really something under five bucks or two bucks. I like to say ten dollars just because typically what I found is penny stocks are cheaper stocks that are less than ten dollars oftentimes anytime they spike they often reverse.
2015-05-14-penny-stock-insights.0083

Looking at this stock right here, HNR a lot of these penny stocks trade on the AMEX by the way, but when they spike you'll notice that this stock is 70 cents and there's a lot of things that happen underneath the stock, there's a lot of manipulation, a lot of spammers just a lot of news that people are trying pump them and then dump them.

So what happens is people get in to them right here and they’ll build things, they'll get a couple thousand shares another couple thousand and then they’ll try to pump it or spam or hire some spammers or post in message boards and then you may get some kind of news catalyst that puts the stock a little bit higher for you know 40 cent gain and then they start dumping the share.

This is what happens is the pump and dump. This typically also happens the same thing on larger stocks except it's more difficult to do because there's so many shares traded but the theory still applies is you know they want the stock to go higher and as it goes higher people dump it.

There's a lot to learn from this because this is how the markets work. Here as the stock gets pumped people start dumping it you can already see that on this day it didn't continue for a second day follow through and as I always say watch for that second day follow-through.

In this level you can see on 512 the stock pumped, got higher, a little bit higher and here on the third day went higher and then sold off. So you're always watching how that stock reacts towards the end of the day you’re watching the end of the day.

Here the stock went higher and then sold off the rest of the day. That shows weakness so what do I then project happens tomorrow because what happened the rest for the day well you just saw it. So it went up and then rejected it.

The reason for this is because of all kinds of different things from manipulation, to cheap stocks are cheap for a reason.

It's kind of like going to the store most people don't buy the most expensive thing you know like a Berkshire Hathaway or even a Priceline you know they don't buy these thousand-dollar stocks and most people don't like the cheapest thing such as this because eventually they're cheap for a reason and they eventually sell back off.

You can see in this stock powered higher sold off, powered higher, sold back off. So it got to around a dollar and ninety-one, ninety-two here and sold back of. If we take it out to the weekly just take a look at this chart, it’s kind of like… you know up here was at the ten dollar mark powered higher, sold off.

Again, powered higher then sold off, powered higher then sold off. So now you have all this overhead supply back here on the monthly, they usually stay cheap. So this stock now was at 1.20 dollars it's kind of staying cheap relatively.

So over here since 2002 it hasn't stayed above really above 20 bucks but really it was if you got it in the year 2000 you still would have been almost at the same place.

2015-05-14-penny-stock-insights.0116

Taking a look at AMD as another stock that I personally started out trading when I was first getting in the trading back in well around 1999 when the stock was right around sixteen dollars right here in 1997. I was watching this stock on the television back then but this stock right here since the year 2009 really has been three dollars and twelve cent and it still for the last six years it's been cheap.

Looking at this stock and it popped and this is because of all this overhead supply. Look at all these huge spikes the amount of volume over here these entire big all this time that has to be built, all this energy that needs to be digested.

It's like eating a lot of food and having it being digested or on the other hand throwing up a lot of food and then you have to you know eat a lot more food to get the stock to go back higher over here. So they need to be doing a lot of chomping and a lot of eating to get that stock to go higher.

In this stock you know every time the stock pops such as right here it sells back off, it pops here sells off a little bits pop here and sells back off. So a lot of pops they actually gets sold and this is what happens with these cheaper stocks and penny stocks and there's a lot of manipulation going on.

2015-05-14-penny-stock-insights.0128

Now there's a lot of manipulation that goes on also for things like Apple you know we have, Carl Ikan that always says “Hey! I got a lunch date with Tim Cook, here and there” and will try to pump those stocks and then eventually he's actually selling, when he's telling you oh we got lunch dates and we got all these things with Tim Cook.

Oftentimes those guys will sell it because they're pumping it and then later they are dumping it. That's where the famous phrase comes in and again if you really want to hear the true story just take a look at Kramer manipulation on YouTube, he’ll talk about it.

For those of you that follow Kramer or anything like that. I don't personally follow him but he’ll talk to the truth on that video and he’ll mention some things up for you to get some insight on how this whole process works.

That's why with a lot of these cheaper stocks look what happens, here stock pops and then sell off, another pop then sells off. So you learn a lot from just looking at these penny stocks because the overall market is set up in this same exact fashion, it’s just with the bigger stocks it's a lot tougher to do that.

For example on this company you know you can manipulate it quite easily so if we take it a little bit earlier you can see that this stock trades right here on my screen on this box that popped up seven point, 9,000, 15,000, 18,000. So you got two to three thousand shares that are traded at any given day and the stocks only it’s less than two bucks.

Basically 10,000 shares and if the shares were two dollars, if I put in twenty thousand dollars you know two dollars times 10000 you know put in twenty thousand dollars in the stock it would move it quite heavily or probably double that stock price from that dollar 50 to 3 bucks you know.

So if I put in fifty grand, a hundred grand, 200 grant you know you're starting to look at a lot of movement so that for this reason the big boys the money managers once you start having some liquidity and you start trading a little bit larger.

Let’s just say over fifty thousand dollars per stock or even a hundred thousand dollars you want to be stealthy, you want to be hidden from these kinds of moves and from these kinds of things because these stocks they're easy to manipulate.

Then it's hard to get out because you'll notice that these stock spike and then everybody's trying to get out and when trying to get out there's not enough buyers, there's not enough people that want the stock because they’re cheap, they're not popular these companies are cheap for a reason. So they stay at this cheaper price.

Take a look at this monthly chart you know we had this 1985 at twenty one dollars but then in 1999 it was basically two bucks and you know you could hold this stock for 15-17 years and still be worth two bucks.

Sometimes these stocks never break out and go to the upside that's why I like trading the leaders the better companies just because you know even if you get kind of a little bit stuck in things which normally I try to exit before you never know if you'll get stock in these kind of position.

You don't want to trade these unless you know what you're doing. The way to trade these is to watch for more volume and these things that I'm going to be telling you apply to all stocks right now. As you're looking to trade stocks that are liquid you're looking to trade stocks that are easy to get in and out of so that way you’re stealthy so that way people can't manipulate the stock as easily.

If you’re trading a larger account let's just say a hundred thousand dollars or more per trade then you know you definitely want to trade stocks in thirty, forty or fifty dollars a share and maybe even more so if you want to trade like the Tesla's, the CMG’s, the Priceline’s, the Facebook's. You know very liquid stocks just because it makes things easier to get in and out of.

Granted some people still like to trade the penny stocks and there is nothing wrong with that, you just have to know which you’re looking for and so first thing that I’m looking for is liquidity. I'm looking for liquidity and how liquid and how easy it is to get in and out of.

2015-05-14-penny-stock-insights.0166

Now these stocks can be manipulated. I mean WGBS is another one I wrote down. Look at these stocks you know the stock’s selling off for a couple years there, popped higher even got halted then they're doing some splits over here.

Here's a stock split here to try and get more shares into the marketplace and just get more activity going and then again the stock continues to sell off. So these things you're always being extra careful. Look at this craziness that happens here.

You're basically, when you're in these trades, you’re in and out quick and you're always taking profits again another something to learn for anyone doing trading is you’re always taking profits whether you’re trading options, whether you’re trading just regular stocks.

If you start with options you’re trading let's say three contracts or 3 spreads then you may sell one spread or you know buy back $1 spread. So you're always taking some of your profits into strength.

Looking at a good stock example for a penny stock and this will apply again to a swing trading and concept. If you’re swing trading is we're going to look at 1-800-Flowers because it did a fairly nice move and I’m going to enjoy teaching you this one because we're going to break this chart a little bit more in detail and the completion of the ABCD run.

Looking at this chart right here you know this stock was a penny stocks so let’s break it back here, break it down for a bit. You can see that there was a lot of heavy down volume over here, bearish volume and you can see the spikes.

The first spike here is the bullish volume and then here we started coming into more bullish volume spikes that are coming in. So even if I took some of the highs here that went across you can see the stock was pushing against this and so we'll draw that out right here.

We’ll take it to the weekly you can see that right here was our initial highs right there and the main volume that started to come in you can see this contraction of volume was right here on this week. It was at the six dollar level.

Now you had some overhead resistance right here that was caution. So now let's break the stock further. You could've got into this right here at this six dollar level so here was your initial, let's make it a little thicker line.

Here was your initial getting point you know the volume was decreasing and then it broke, huge volume pops. So there was your initial entry point as that stock approaches this line this level you take some profits so that is your goal.

As we continue moving higher, stock powers higher moved up a couple of box. It moved almost as much as from the breakout point so the distance from here to here we take that and we move it up.

Again you take some profits at this level, if you didn't take any earlier or if you added on that break you could have taken some profits there. So this a weekly chart so we're looking at it on the weekly. This is a way to look at this and start trading that stock.

Now let's say you completely missed this move, that's perfectly okay you're still watching these highs you still have the same trend lines. You’re still looking at the same kind of concepts we have nice heavy volume, it's a key sign.

If you're more of a person that likes to be patient, looking at this stock that's six bucks, it’s a cheaper stock you’re getting about two million shares traded on a per week basis. So now you start looking and waiting for the pullback or retracement. The pullback you wanted to come back to about this level so as we start evolving this you can see that this stock, let me zoom in. So you can see that this stock right here as we expand this out came back to this level.

You didn’t know where it was going to break so looking at this right here you didn't know if this was going to be your breaking point right here as this stock did on this on this little bar right so let me put point that out.

Right here this bar was starting to break and it almost touched it right here so what you would’ve had to do you probably would’ve got into this trade and eventually it came back down and sold off, it wasn't ready yet.

You probably would have had a scratch or a slight loss in this trade. So that's kind of like testing the water you know on your initial trade. So then you're saying “okay it's not ready yet” so you're waiting for a build, again you're building and building and building and as you're looking at the volume you can see that volume is again starting to pick up right here on this first initial spike on this bounce.

It's not huge but it's just starting to kind of show something and the reason I’m looking at that is usually on this retracement you want lighter volume. So here we have lighter decreasing volume so take a look at a line right here.

If we draw the highs on these breakouts notice everything that's in here is a lot less, it’s weaker, right? So look at all that empty space. So if I draw that line across from those highs these other bars you can see the volume here in between this region is a lot weaker than volume over here.

This break out right here, this breakout this bar, this bar and this one, they were all a lot heavier and all the stuff in here is a lot weaker. So again if you are a more cautious person you would've waited for this stock to break out and you would've gotten in it right here because this was our retracement so we're looking to get in it right there on that breaking point because now we have that huge volume bar coming into the stock.

That's our entry point the next entry point if we missed the first entry point. The first entry point was right here and the second entry point was right here and the third entry point was right there. If you're not getting this, check out the 245 Money-Making Stock charts book there's a lot of these kind of charts in there.

Now you watch for that stock to complete its move. You watch for the completed move and what is the completed move to me? Well it's an ABCD structure. So if we break this down we look at points A to B, B to C and C to D, here's our a point and this is just a reference point connect the dots, here's our B point, B to C and C to D.

How do I calculate this move? Well you can use a calculator and calculate the distances but really what you're doing is taking the swing lows from here to here and notice sin this box that says four dollar and nineteen cent gained from the lows of the swing point to the highs, A to B it is four dollars and nineteen, four dollars and thirty five cents.

These are estimations, these are projected moves. So we got four dollars and let's just call it 4:30 to make things even. So now 4:30 is our projected move, we have a pullback, there's our pull back and now we calculate this distance again, we add 4:30 to it so we should be getting right around here this was our projected move right here.

Now in this example the stock went a little bit higher. It had a slight extension it got up to right here but then eventually it pulled back. So these projected moves are not perfect but they do give you an estimate they gave you a theory of where to go.

Here's our A to B, B to C and C to D so our projection was right here and then this stock is now selling off. So what is my point here? My point is when we get to that projected move, when we get to those tops to the highs of an estimated price move you want to take the majority of your profits.

That is because you don't know how much longer that stock will go. The risk to reward now is not in your favor anymore there's less reward in your favor.

A lot of times when these stocks hit these projected move something new happens they pull back and sometimes you know they against sell-off and in this case the stock is pulling back to those swing point highs again.

Take a look in here it has a potential that it could bounce or it could break it. So what your goal is to capture these runs and moves the ABCD patterns take a look at them.

Once you’re in them after the volume spike, after the movement, you're looking to get out on the majority of your position after we hit the price projected point D and that is because again the risk to reward is not in your favor.

You have more risk and less reward and that's why you take profits in the strength because this stock could come back which it's already doing coming back to right here this 9:30 dollar level and if it breaks it you could see it coming back to seven dollars without a problem okay.

That’s one thing I want you to look at and when you're trading penny stocks when you’re trading swing trades, 20-40 dollars stocks the concepts are the same. I wanted to focus today a little bit more on penny stocks just because some people had questions about them up but the concepts and the principles there are all the same.

Just in terms of the human behavior aspect of it, just because of this human behavior the way that works the way that it functions we power higher, people take some profits stock pulls back and then they power higher again.

Let’s just draw quick little Fibonacci on to see how this pans out okay. Looking at this for those of you that have studied Fibonacci, mean just zoom in here was because it's little tougher to see on a cheaper stock.

So here we draw the lows to the highs to capture Fibonacci level. Notice how the fifty percent level right here is creating a nice little support projected price level and notice how the stock right here came back to this level right here and bounced.

Really interesting how that really pans out and works out. Right there is where it bounced and here's our fifty percent level right here so we draw this line across it’s a 50 percent pullback.

If I get rid of this volume you can see it a little bit more how clean that is so see from the lows of the A point to the highs of the B, we got our Fibonacci comes back halfway to retrace and then it powers higher right there.

Take a look at how that hits that 50 percent pullback, nothing is wrong with the stock on a fifty percent pullback stock powers higher, hits the projected move and then sells back off. So you're always watching the energy the momentum of stocks and how they lock.

2015-05-14-penny-stock-insights.0273

Whether you’re trading cheaper penny stocks, whether you’re trading stocks like Amazon again take a look at how this all pans out and works out. A to B, B to C and C to D. Projected move same concept whether you're going to the upside or to the downside A to B, B to C and C to D principles are still the same.

2015-05-14-penny-stock-insights.0271

Just some tips some insight for you hope you got something out of this video lesson you know and there's a lot more knowledge, lot more insight to go in detail into this concept and topic it’s just a little touch of some insight for you so maybe it'll just put you in the right direction but check those different charts know and look at those different stocks whether they're penny stocks more expensive stocks.

Looking at these penny stocks just like with the skew thing that happened stock powered higher it was a cheaper stock, then sold back off and now it's doing a slight retracement, its retracing. So look at the breath the way that these stocks trade and start reading these patterns, these signals of human behavior and how we function in the world.

I hope that gives you some insight over the next couple of weeks I'm actually going to be doing some major reviews on different brokers from Scottrade to Trade King to Charles Schwab. I'll be putting in i think some of them twenty grand, someone of them ten to twenty five thousand dollars.

I’ll be just doing review of the sign up process is of the different brokers, I'll be doing the review of their panels, I'll be doing a review on their options layouts just different things like that for those of you that don't have a broker yet.

I’m actually just going to be putting in the capital required to get access to all their premium features and just give you some reviews also on videos as well for those on the YouTube channel so that way if you're just unsure which broker to sign up to we'll be posting a lot of video.

It'll be about 4 to 5 different videos per broker from the registration to their basic website, trading platform to trading on their streamers or their tools just all kinds of different stuff and that's what we'll go over in detail in the next couple of weeks and couple of months as we signed up to those brokers.

Along with a couple of the books and those are just some of the things that I'm working on some of the trade I’m working on and just some insight for you on this week's a Rapid Recap and I hope you got a lot out of it.

Enjoy your summer here as we approach the warmer months. I hope you’re enjoying it spending time with the family. We went to the zoo couple of weeks ago, we’ll be going this week to have some dim sum with some folks and just enjoy little bit of the warmer weather and things like that.

I hope you make the most of it whether you go do some fishing, play some sports, you know make the most of it and enjoy your life.

Thanks again for joining me. Enjoy your week and the rest of your week and your weekend and I will see you guys next week.

Thank you and take care!

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

Join over 31,258 regular people who are bettering themselves in the stock market.

Click Here to Sign Up

This is a community that is motivated to learn & improve their skills.
Join us and get free training lessons, freebies, and exclusive promotions.

want some helpful advice?

pay per minute coaching

I am scheduling helpful coaching sessions for people who are interested in real-world advice & guidance where you only pay per session. No long term commitment required.

Learn more
This website and content is for information purposes only as Rise2Learn, TradersFly, and Sasha Evdakov are NOT registered as a securities broker-dealer nor an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Rise2Learn, TradersFly, and Sasha Evdakov cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Rise2Learn, TradersFly, and Sasha Evdakov in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Rise2Learn, TradersFly, and Sasha Evdakov accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.