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Ep 105 : Finding Penny Stock Trading Opportunities

October 6th, 2016

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Hey this is Sasha, and welcome to another episode of let’s talk stocks, episode number 105, finding penny stock trading opportunities.

I know I don’t focus a lot on penny stocks when it comes to making videos, and there’s a reason for that, I typically try not to promote too much on penny stocks, and I’ll tell you those reasons in a second, but I know that you guys have been asking me a little bit more about penny stocks, day trading, so I’ll try to focus a little more on those contents and subject matters because you asked for it.

As a full disclaimer, number one, the first main thing is an example that are here, especially in this trading video or any other, are simply jut for demonstration and illustrated educational purposes, they’re not any recommendations for you to buy, trade or sell any security and that is simply also because you probably have different risk profile than I do, or you might be watching this video at some time in the future. I think most of you understand that by now.

Why I don’t promote penny stocks

The other thing is that regarding penny stocks, you need to be aware of certain things, that as you’re trading these vehicles, or looking to trade these vehicles, there’s a reason why I usually don’t promote them or teach about them so much, because I want you to get away from that in the future as you trade and as you evolve as a trader.

Why is that? Well, here’s a few insights, of course we could just make a video just about this one course topic of why personally don’t promote it.

In general, number one, they don’t really trade a lot of volume, so the liquidity is weak, so if you’re looking to trade penny stocks, it’s a little difficult to get in and out of those positions, sometimes you have to get up early and request those shares from your broker if you’re looking to short that stock, or the stock isn’t traded that heavily.

Another thing is that there’s a lot of manipulation that goes on, for some people that know and understand this, you can capitalize on that, which makes it very profitable for those of you that are aware of what’s going on and happening underneath the surface.

The other thing is that as your account grows and you become larger as a trader; let’s just say a 10 million dollar trading account. You typically want to get away from trading penny stocks, because you can move that sock way to quickly, so if you’re looking to buy a certain stock that only trades 10 thousand shares at $20, that’s not a lot of money to move that stock on a day to day basis. So as your account grows, you’ll probably need to move to different vehicles, because you’ll need a bigger vehicle in order to trade that.

It’s kind of like when you’re hauling lumber in a car, in a hybrid, it definitely is a little more difficult that hauling lumber in a truck. Or is you get a big semi-truck, you can haul a lot more lumber in those as well, so the bigger your account size gets, the larger vehicle that you need to trade, the larger the stocks, the larger the ETF and so on.

Keep those things in mind as we go through this session, and this is one of the reasons why I really don’t hone in and promote this, because you have to evolve.

But for those of you starting that are interested in penny stocks, maybe you have a smaller account, it feels good or you think it’s a good way to get out of a certain slump, or grow your account, you by all means can do it, so long as your personality matches trading penny stocks.

It’s a faster type of trading

It’s a little bit of a faster type of trading, because these stocks don’t move for weeks or months to the upside, some do, but very rarely do you see a penny stock heading for multiple years to the upside, from $1 to $50, most of the times they have quick bursts of energy to the upside, and then you’re getting out.

It’s more so like a day trading kind of concept or personality that you have to match with this. And then a shorter swing trading, it could be a couple of days on a hold.

If it works for you, do it

That’s some of the reasons for me personally, I’d rather sit in my positions a little bit longer, have a different quality of life, that’s for me personally, but for you, if it works out for you as far as penny stock trading goes, and as far as trading stocks in that way, and that matches your personality, then by all means, of course you can trade them.

Let’s get into the lesson with these things in mind and look at scanning for some penny stock trading opportunities, because the concepts are still the same, you can of course apply some of these concepts to swing trading as well, but I general, we’re going to hone in a little bit more on the cheaper stocks and penny stocks, but more so the penny stocks.

Let’s take a look on screen here. As we start looking at penny stocks, you’re going to have a lot of different stocks available to you, especially in the cheaper range.

The platform that I’m using is called TC2000, by Worden, you by all means can get it for free at freestockcharts.com, but you could use any platform really to scan for your stocks.

Shorting penny stocks

Some of the things that I look for when trading penny stocks in general, most of the time I will look to short penny stocks, and that is simply because if you take a look at this stock right here, which is basically at $1.82, you’ll notice the trend of it pretty much is to the downside, so the momentum, the energy, the natural way that these penny stocks move is typically you need to be comfortable with shorting.

Simply because they’re manipulated, the little spikes that they may get from time to time to the upside, usually people sell those off within a few days and then they continue rolling back over to lower price levels.

That’s why you need to be really comfortable with shorting, you’ll also notice there’s a lot of weird things that happen within penny stocks, you might get these stock splits right here, a 23/20, a 32/29, 20/29 and that is simply to probably prop up that stock price a little bit, which again goes along the lines with manipulation.

These are some of the things you’ll see, as far as trading them, you can trade them, they are in my opinion a little more risky for the average or general person. Can you trade them? Yes you can, but you need to be aware of those risks.

Here’s the thing that you want to watch for as you start looking and scanning for these stocks, or finding these stocks and trading these opportunities.

Again, it just gives you some insight to what I would watch for as I used to-do some of these penny stock trades, obviously now I don’t do them, just due to my account size and some other things, my personality just doesn’t fit with it.

Building your watch list

But when looking at these stocks, you start taking a look at building your watch list, some of the stocks you like trading, or you could also look at the volume and the action of what’s going on.

You can’t be biased towards one stock or another, it’s basically working off of movement, so if you see a stock moving, you’re getting in it, and that’s what you’re doing with penny stocks. If you see it moving to the downside or upside, you’re just getting in on that trade.

When we look at this concept, if you’re looking to build a basic watch list from the beginning, here you could see I’ve opened up an NYSE and the way you do that is go up here and create a new watch list, you can just basically crate a scan, and if you just type in NYSE you can load that up and you’ll see all these stocks that are being traded, and you can sort by price and now you’ll get the price based on ascending and descending order. You’ll see some things that are 59 cents, 70 cents.

There’s also multiple other watch lists, for example, if you go to a watch it like the NASDAC you could trade these as well.

You’ve probably also noticed, when I look at these things on the watch list, there’s the bulletin boards, the pin sheets; I recommend you stay away from those. Those are really worse off, in terms of risk.

If you’re going to trade some penny stocks, a least stick to something like the NASDAC, NYSE, there’s also the AMEX, if you look at the AMEX composite index right here, which also has some stocks in here that you could look at sort through. So again, these are just different indexes that you could just search through. In either case, you’re just looking through these different platforms here.

Look at price patterns and movement

When you go through these, you’re basically looking for nice price patterns, or you’re looking for a break out or a movement, so as first, why don’t we just take a look at some general penny stocks, I’ll just use the NASDAC or the NYSE, just to get started for conversation sake.

If we look at some of these, you can see that this one for example is trading 20 cents, obviously it’s fairly cheap stock right here, it just started out because there’s no data over here in this area, so this is not one I like because there’s a lack of data, I like stocks that have some history.

Of course we are on the monthly here, if I change it to a weekly, you can see some data starting to come in, but the trading volume is very light a weak. Of course it’s only 20 cents. In either case that’s not one I would personally trade.

This one you can also see, as we take a look here at the monthly, you can also see, again the tendency, it shows you the way that most of these stocks move, it’s usually to the downside, you’ll notice split in there as well.

The volume also is weak, but it’s picking up to the short side, so look at this, people are shorting this stock or selling it at least at the 30 cent level, so this is not one that has a lot of movement.

You basically need to buy a lot of shares or have a lot of leverage, in order to either get some upside movements or some downside movements in this, or exposure.

Look for stocks that have potential to move

Typically for me, I would say, looking at a sweeter spot for these kind of stocks, you’re looking at maybe, even if it’s something really cheap, let’s say on the really cheap end, $1.50, $1.70, you’re starting to look for things that actually have potential to move.

And you could say that, this chart, and again don’t’ know what this stock is, I don’t recommend it, but let’s just say this chart looks like there’s some kind of break out, so you have some basic knowledge of technical analysis, and you look at it and you say, there’s my break out point on that bar, and I see the volume that was coming in right here that was bullish. Stock was testing it for a while, and then it broke out.

If you really wanted to get into this stock, you could’ve gotten in it right around this level, and now you ride it for a little bit. This run right here, from $1.52 about let’s say $1.75, it’s about a quarter that you’re making on it.

It’s not a lot when you’re talking about stock market terms, but I also understand that everybody is at different portfolio sizes and they like to trade different things, but you’re looking at making a quarter.

When you’re looking to make a quarter, you’re still doing the same concept as far as taking profits into strength, as you see a major bar like this, you take profits into strength, and as you see this rolling action, again, you might want to get out of your full position, because these things will come back, most of them do. Not all of them, but most of them do.

Penny stocks tend to go down

If we take a look at this, when we start back checking it on the weekly, the monthly, you cans yeah, this stock was at that $6 level before, and look at it, what has it been doing from time to time?

You take the oldest point and draw it to the current point, most of the time it’s been going down, very simple, very clean and easy to understand, you’re just getting it at a catch when there’s a little bounce at this point in time in history. That’s what’s happening, and this is what you do in penny stocks.

If you’re the contrarian, or if you’re trading it differently, you could say, I’m going to wait for these penny stocks, and wait for them to explode a little more, and I’m going to start shorting so I start shorting at these different levels, and then once these stocks start rolling over, you basically short the stock.

Sometimes it’s difficult to short these, because not every broker has these ones available. And you might want to have two, three, four different brokers to see who has shares available for you to borrow. But in general, that’s really what you’re doing.

If you’re doing it the other way, you’re looking for these big wide price spread bars, these wide bars that go higher and then start to die out. It’s like the gas is dying out and then things roll over, so that’s kind of what we’re looking for, that’s a base general concept for trading penny stocks.

As I start looking to building these things in my watch list, and as I start looking for trading opportunities, I’m looking for, is there a consolidation patter? I’m looking for, how was this stock moved or behaved? Is there some volume? Because some of these stocks don’t trade a lot of volume, take the little calculator right here, 10 thousand shares, times $2 a share, what do you get?

Trade only 10% of the daily average

How many shares or how much money does it take to really move that stock that’s only $2? 10 thousand shares times $2, really doesn’t take a lot of money to move this stock, so for me, I don’t like trading these things in that way, but if you’re only getting, 200 shares, 100 shares, it’s not that big of a deal, but as you start trading 5-10 thousand shares of these, you’re going to move the stock, so you definitely don’t’ want to do that, you want to trade less than 10% of what the daily average, not the daily total, the daily average

If you look at the average, it is 33 thousand shares, times $2, you’re looking at about $66,000, not really that much money in the stock market world to move that stock, and that is simply, the reason for that is because you want to be like a ninja. If you need to get out of it, it’s a lot easier to get out of it, because you don’t want to get stuck in a position.

Penny stocks are cheap for a reason

As you start scanning these things, you’ll notice most of them are actually pointing to the downside, like these. And that’s just because they’re cheap for a reason, they break down, they typically don’t’ appreciate.

For me, as far as a longer term investing concept, I look for longer term growth stocks for the future. These are typically just trading vehicles, and here’s what happens.

If you’re looking at this one, let’s just say you ran across this one. If we’re looking at a monthly time frame. Where is my problem areas?

You can see it right here, right away, my problem area is basically right there in that stock, the highs of 2012, you can see. The high is $2.93 and where do we get to over here? $2.84. Fairly close.

If we go into the weekly, you can see it came right into that, we had a break out right here, so there’s a little break out, if you do a little descending trade line, a little break out right here, stock starts moving to this upside, and now we’re starting to again, break lower.

That’s your shorting opportunity, for those of you that are shorting these, you’ll be shorting around this level and this level for those of you that have been long, or looking for long trades, you’re setting up your alerts to see different strategies and different situations.

If you were doing the moving average, you could’ve gotten into the stock right here, where the volume crossed.

I hope you start seeing these things. As far as shorting goes, I’d rather get into a $5 - $7 stock; it’s a little bit more favorable. Like a $3 stock right here, this stock was a $15 stock, still a cheaper stock; I wouldn’t say is a penny stock.

The definition of penny stocks

The penny stock definition has changed from time to time. It used to be stocks under a dollar, now its stocks under $5. For me it’s cheaper stocks.

In this case, you can see that this was a support line, stock broke down and we sold off right there, from that point, $11.33 and this stock just continues to head lower, that to me is a penny stock.

That to me is where you go short, have your support, have your resistance, have your lines in the sand, and one these stocks break below it they’re usually tossed, they’re usually in the gutter, and most of the time you’re going to be a short in these positions, you’re going to be a person who shorts.

Penny stocks can break out to the upside

There are rare situations where these things do break out to the upside and stay above there. For example, 1-800 flowers I think did that ok, a very popular company.

Basically this stock was fairly in the gutter, it was right around this price point $1.91 and it kind of broke out, you could say it somewhat broke out, so here we’re looking at the monthly, so we were at $1, we went up to $3, we went up to $7, so in this situation and instance, even then you can see we got back into the highs right here, about the $13 range and the stock pulled back.

Because a run from $1 to $13 is explosive, and that is one of the reasons why a lot of people are attracted to penny stocks, but it’s also where a lot of these start pulling back.

As you start looking for this extension, if they’re too far extended, if they’re like a rubber band, too far stretched, they typically pull back.

If you are on the long side, perfectly fine to trade them on the long side, here was your point, you had a consolidation point right here, It’s a little triangle you’re looking for, the stock initially kind of broke these levels of resistance, support, and the again, you had this coming in, with larger volume.

The volume kicked in, you had a little pullback, here was another opportunity and again, any time you get into these, you’re taking profits, a little bit later, because you don’t know how long these things are going to power higher.

If you look at it on a weekly time basis, again, you can look at it like this, and you could say, this stock right there, that was my entry point, I take some profits into strength, stock pulls back, powers higher again, you go again a second time, and then again, you’re taking profits into strength.

And as it hits this level, you’re looking at the other charts, you’re still looking at the monthly, because look at what that would’ve told you, it would’ve told you there are some problem areas right there. Very clear, very simple, and now the stock is rejecting and you can see now for the last year it’s been selling off and kind of basing, we’re still above that $1 range, we’re at $9.21, so we’re not at $1 like it used to be over here in 2010-2011 but in these instances, this is kind of a rare kind of thing that happens.

The majority of these stocks are typically stocks that will continue selling off. Even if I look at a $7 company. You can see that this stock came out, sold off, trying to move higher, and now again, starting to sell off, if you look at the weekly you can see what’s happening, so we opened up, sell off, move sideways, well off, try to get higher. You maybe got some people thinking” oh yeah, it’s going to get higher”, could be the day traders or just the manipulators, but again, we are starting to sell off again. It could be the owners of this trying to get out slowly.

You don’t want to trade light volume

You’re being very cautious, but what you want to watch for when you’re doing this, you can see that some of these don’t really trade a lot, this one you can see is basically frozen, there’s no volume, nothing’s happening.

Look at this, 64 thousand shares, not much at all. This one, 48 thousand shares, averaging about 176 thousand, that’s not a lot in the stock market world, so as you look at these volumes, you don’t want to trade light volume, and you can look at this on the NYSE as well, so as you start looking at the NYSE, you can see some of these right here, the volume, you start looking at the volume, you start looking at where are the trades? this one right here is completely done.

There’s nothing that’s happening, and it’s the worst thing, if you long this stock and you’re stock, and you can’t’ get out of it, your money is garbage, you might as well given it to a homeless kid, a person in need, bought some books and give it to school kids, whatever, done something more useful for the world with your money.

That’s one of the main issues with these penny stocks, and why you’re getting in and out of them usually fairly quickly and look at this, HHGregg, a big company but it’s still technically a penny stock, and if you look at this company overall, it’s been heading lower. The stock price reflects it, most of these move that way.

Finding penny stocks

Looking at the volume, you want to see the volume a little bit higher, so if you do a scan, and you’re looking for this, one of the ways to eliminate this, the AMEX Composite is about 293 stocks here, this one about 3159 in the NADAC, the NYSE is about 4781 stocks, I’m looking at the lower left here.

As you look through this what you could do is set up scans to find these stocks, there’s a few different ways. For me, I’m looking for certain price criteria and volume criteria, so what would I do, what kind of search wood I go for, and what’s kind of more ideal?

Let’s just say we start an easy scan and let’s see, if we make a new scan, we go here, easy scan, create a new scan, I want the price is between, the daily, let’s just say I want a $2 stock, the maximum let’s say $11, just because I don’t want to eliminate certain stocks in case the $11 stock is breaking down lower, so let’s say $2.5, right around that range, so I’m looking for these kind of stocks, so that’s a price condition that I put in.

The scan that I want to do, let’s do the NASDAC, and the volume, if we search for volume, I could do a volume search in the last 5 days, that’s one option, the other option is, I could just do the volume is between greater than, crossing above, below, or ranks. So, if I’m looking at the ranks, as far as US stocks go, I can compare it to the ranks.

Instead of getting the cheaper minimum ones, you have to remember these are penny stocks, so let’s just knock out the bottom 50% or so, or let’s just say the bottom 48%, let’s just see how that goes, as far as the ranks goes and let’s do a quick scan and see what happens. You can see it brings my scan down to 376 stocks.

That now basically compresses my view on the stocks I need to go through, and the stocks I need to watch. Now I can start with my $11 stock, and I can say, the volume on a week is 3.4 million, that’s pretty good. I’m looking, there’s a nice explosion.

Choosing penny stocks to trade

How do I choose the ones I’m going to trade? Well, there’s a few different ways, obviously it’s going to depend on your system, your strategy, that could be a whole other multi-hour video on its own, but to give you a rough idea, let’s just say, in general, you’re trading stocks that more people are trading, you can do something like a volume search for the 5 day, or a volume search in general, so you could just do it by that.

You can see right here, as you look at it, for the day, this stock is surging in volume, now you start asking yourself, is the price moving as well and behaving with that stock? And the answer is no, it’s not.

So you don’t’ want to trade it, because if price isn’t moving with it, you don’t want to trade it, so you take a look also at the weekly, you take a look at the monthly, and you see, no, it’s not set up, I only have nothing in my favor, I have volume but I don’t have anything else.

Then I might look into the next thing. Let’s go ahead, and let me see here, the search volume, this one, and this one, let’s go to the next one.

Here’s another one, there’s another one that came up. So again, this one, a lot of volume coming in, as you can see, I probably missed it going long, because this stock already exploded.

But I could probably short this stock, looking at it, because it’s already stretched, it’s already extended, if I look at the weekly, look at this, it’s coming in right here, it has some trouble in this area and now this area.

More than likely this is a good shorting candidate. If I look at it, and there’s a gap right here, there‘s a couple gaps, more than likely this one’s going to pull back, that’s the way I’m looking at these stocks, because these stocks are weak.

Don’t get emotional

I don’t bias or favor one stock or another or one thing or another. I’m looking at my probabilities I’m looking at my risk, what do these things normally do? That’s what I do. A lot of people, they get really emotional when they are trading stocks, they get emotional, I even get emails about “you shouldn’t have said this, or that”.

For me, when I’m looking at stocks, I’m looking at it statistically, at my probabilities, I’m looking at the numbers, that’s really what I’m looking at.

And for me, when I’m looking at penny stocks, most of them are going to continue selling off. So the probability of most of these stocks to sell off, or the probability of me choosing one penny stocks that’s going to run higher, are kind of against me, so it’s better off for me to find stocks that are ready to break down, if they’re at that $7 - $9 level, trading lighter volume, or popping from the $1 to the $10, more than likely it’s going to come back, it’s gong to probably come back to the $5 range, because that’s a better price.

Look at statistics and probability

It’s kind of like, imagine a cellphone in this day and age, you might get a cellphone for $100, then you might also pay $600 for a cellphone. But let’s say cellphone prices skyrocket it to $2000 per phone, that’s a little bit extreme, you would think, maybe they’re increasing in price, but they’re not going to be $2000, they may come down to $800, $900, $1000, but $2000 compared to where they are right now, it’s a little extreme.

That’s what you do with the stock market, where you’re trading, you’re looking at statistics and probability, the chances of those things.

And the more things you have in your favor, like if you have volume, if you have price action, behavior, if there’ all these things working together, for you, then the more chance of percentage of success that you’re going to have.

Let’s take a look at a few of these others. Again, this one you can see. It’s got some kind of volume action, and it’s got this volume surge, but look at the way it’s traded, this is a chart that you should not be trading. Look at this chart; it’s all over the place, that’s not one that you’re trading.

This one, again, look at it, you have some kind of movement, but it’s staggered movement to where there’s no clear trend, it’s kind of sideways, it’ just like a little dot matrix that’s moving sideways in a way an it’s trying to get a little pop, but then look what happens when you get that little pop, these things come back.

Look for movement

They pop, they come back, look at the volume on the sell action, they barely do any movement, so for you, you’re looking for movements, you’re looking for set ups in a way. And with these set ups, they can range in all kind of different set ups, because there’s so many different set ups that you can do. There’s a lot of variation.

You can see, look what happens most of the times, as you start looking for a support line, and you see a volume increasing, and you do this, right in the morning, you would do this almost that first half hour.

When you trade penny stocks, some rules change

Normally I’d say don’t trade the first half hour, that’s typically my rule for most people. And that is typically because when you’re trading that first half hour, you don’t know which way stocks are going to go.

But when you’re looking at penny stocks, the rules are a little bit different, because you need to get into those stocks fairly quickly, but it can whip you around, so again, different kinds of risk, different kind of trading, apply for a different type of person.

But if it’s a quick type of personality that you have, if you’re in and out fairly quickly. If you have that personality, then it may fit you.

In general for me, it doesn’t fit me, I used to try and trade penny stocks, it’s not for me, it’s not the type of game I like to trade, and as your account grows, you see that as your account continues to increase, you just can’t trade these stocks, so for me I just can’t do it.

But if you’re starting out, and you’re building your account, you’re building your portfolio, you want to trade these stocks, you have to take into account that the majority of them are probably going to sell off, the majority of them are weak for a reason, and most of them just will never see the sunshine, they just try to get up there, but then they just keep coming down in terms of price.

Take your profits quickly

Most of the time you’ll probably be shorting these stocks, and if you’re looking for the long play, there’s some times where there’s news announcements, or even manipulation, where it may work out for you to trade these things for the long side, but then you want to take those profits fairly quickly, you want to take half off, or a third off, just to reduce your risk, because if they pull back the next day so fast, like you’ve seen in the examples, then you don’t want to get burned.

You could say, I want to raise my stop or I’m going to keep raising my stop very tight, but if in one day it just comes back right away, all those profits are gone, and you might actually get stuck in that position, so be very, very careful, as you’re trading these penny stocks, because you don’t want to get stuck into that position.

Let’s look at a couple more real quick as we do some scans, just look at some of these, you can see this one, this one would’ve been really nice, if you’re long for a little play right here, you’re looking for a nice volume search like that, and even if you missed it there, you could say, I’ll wait a couple of weeks, see if there’s a basing pattern and then again right there, that would’ve been another opportunity, the volume wasn’t as big, but you still had some nice volume. And now it continues to run to this upside.

I think in this area, already we’re getting a little toppy, so more than likely we’ll come back, somewhere back into this price level, but it’s possible, it can get to the $6 range, and that’s why you start checking the weekly chart in this area as well, so you start looking, can we get into the $5.89? It’s possible, we can get into this price level, right there, into that level, and that could be why we’re selling off, more likely than right there, because you have that support, which is now resistance, you have some issued right there, and that could be your problem area.

But even then, if you look back on the daily, you still had multiple opportunities even for the long side, so this would be you first opportunity, this consolidation right there could’ve been your second opportunity.

Look at things in context

If you really were timing it very closely and you were a day trader, you could say that was your third opportunity, but really by now you’re kind of extended, especially when you compare the run from here to here, from $2 to $4, doubling the stock price, it’s pretty fast.

Think about it as if apple just doubled right away in a month. Going from $100 to $200, or an amazon stock going from $800 to $1600 in just one or two months. It’s just a little too fast, too quick, so you have to look at it in context in that way.

If you miss the move, just move on

Looking at these, you slowly start scanning for these things, but you’re watching the volume, things like this already, when they gap down, and you see these things right away, I typically don’t chase these things, because if you’re looking for these, and you’re thinking, let me short this one right now. You have to remember that now these shorts are going to take profit, and this could come back to this level half way, and you might get burned, because you missed the move. If you miss the move, you continue, you move on.

If you look at it here on the monthly, this stock has been building the case, look at it on the weekly. So your trading opportunities, that’s why I always say look at the weekly, your trading opportunities right here, A to B, B to C, C to D, your trading opportunities, if you were trading this stock, let’s say this one was not a penny stock earlier, but here was your first short, you have to look at the big picture.

Stock was rejecting, you could’ve probably shorted it here, probably here, so you’re watching these different areas, and you start getting familiar with the charts, the way they move, that’s what you want to do.

As you start looking at these things, you are going to check, the daily, the weekly, the monthly, and it gives you a big picture, like this one, same thing, I check the daily, maybe it was a good opportunity right here, I’m watching it, I’m seeing it, I’m seeing the volume picking up right there, I might get into the stock, let it run, and then I’m taking my profits. And you see what happens.

But these are short, notice these are not multiyear trends, like if you go into an apple to the monthly chart, these are not multiyear trends to the upside like this.

These stocks, typically the trend, just pick a point from the end to where it is now, most of these are down, and if you look at the weekly, the same thing, pick an ending point, pick where it’s now, most of the times it’s going to be a cheaper price value and they’re typically selling off.

That’s what happens, and that’s why in general, I’m more biased on these to the short side, if I’m doing anything with penny stocks, I would short them more than going long. There is in certain instances where you do, and if the charts are set up to show you that, you may.

But the point is, and the problem is that most of the time, they will come back, they selloff, they’re cheap for a reason, in this case you can see there’s a hand full of going long opportunities, which does happen, in this stock from July to now September, it has been running well, and you may be lucky to catch that.

And you can see even back here from 2016, it worked out, and sometimes this happens, so long as the volume is there.

If you see the volume keep putting in more people and more people are buying and more shares are being bought, then of course it’s going to happen, but when you get too far an extension, you’re going to see a pullback.

Because you can see what happened with the stock in the past, this stock used to be at 62 cents, 70 cents, 90 cents, it did the same thing in the past. So here you can see it went higher to about $12 and then you get the pullback, that pull back brought it back down to $2.

Find trading opportunities that match your personality

That’s the thing, you’re watching these levels, you’re watching the stock, you’re watching how it moves, how it behaves and you’re finding trading opportunities that match your personality, that’s what penny stocks are.

When you’re looking at trading, you’re trying to find a personality that matches for you, and if you’re trading penny stocks, it’s typical a personality that’s a little more quick, a little more active on the computer, you want to be a little more aggressive in your trades, your decision making is a little more rapid.

If you’re the type of person that runs around little more, you’re a tile bit here, there, everywhere, maybe that’s the right type of person for penny stocks.

Also if you’re trading a smaller account, for some people they’re attracted to this, because you can leverage and buy more shares.

This is not always the best idea from my point of view, because if you get a $50 stock, and you say, let’s say trade 10 shares, that stock might be able to go up $5 - $10, a penny stock, if you do a $2 stock, you might only get 75 cents, or a quarter, or $1 at most.

Be mindful of the risk

Yes, you might get a little bit more on a percentage basis, because remember, it’s percentage gain, not just dollar gain. So you might get a little bit more on a percentage basis when it comes to penny stocks, but then, you wonder, is the risk really worth it when it comes to holding on to a stock that’s $50, versus a stock that’s $2?

Because a stock that maybe is a little bit more favorable, has a foundation as a more solid company, those stocks, at least I’d rather get stuck holding those than maybe a penny stock that I can’t get out of. Those are some of the things that you have to consider.

Whereas if you take a look at a company, like let’s say GE, you could say that, this stock it doesn’t move that much, it’s a slow mover, or bank of America, it’s a cheaper stock, but ultimately I’d rather be holding bank of America for a longer term play, at $15 or even call it like a sprint, a much larger company, than something that’s really unknown for $1 or $2.

Simply because of the fact that they just have a business that’s really stable, a lot more stable than maybe some of the other companies out there.

Summary

Anyways, you have to ultimately decide if trading penny stocks is for you, again, all the stocks that we covered, not recommendations to buy or sell any of those stocks, because you right be watching this video sometime in the future, so you need to ultimately make your own personal decision of what works for you.

There’s different personality types, for some people, penny stock trading is not for them, if it’s not for you, if you don’t want to sit at the computer, you can’t’ short a stock, then you probably don’t want to trade penny stocks.

And of course as your account grows, you’re probably going to want to move to other trading vehicles, if you’re looking for stability, if you’re looking for retirement income, you could trade penny stocks, but I find that most of the people, if you’re looking for more stable income, trading penny stocks is not the way.

I often find that people who are interested in penny stocks, are looking to get the quick gains and quick money, only to be able to grow their account. Which in that case you could use it to have a stepping stone to grow your account in the future, but just be mindful of the risks, that’s ultimately the key. Be mindful of the risks that you have.

If you’re trading a stock that has low volume and you get stuck in it, that’s it, you’re stuck in it. If you have a stock that’s moving to the upside, and it’s moving really well, and you think that stock is going to do phenomenal, chances are it’s going to pull back, because they were cheap for a reason before.

Most of them, they sell off, and there’s a reason for that, so again, don’t buy into the hype, trade it based on what you see, on the price action, the behavior.

Those are some of those concerns that you really need to be mindful of as you’re trading these types of vehicles, as you’re trading these types of equities, when you’re getting started in trading, or even if you’ve been trading for a while.

There’s a lot of penny stock experts out there, and a lot of people like to get into penny stocks, especially if you have a light account, high school, teenagers, college people, they love getting into them, and I get emails about them, but just be mindful of the risk, that’s all I can really stress, just be mindful of the risks, because they’re definitely out there, and if you’re just new to trading, start with 5 shares, start with 10 shares.

Trade a lot lighter than you think you need to, simply because experience takes time to build, and as you build that experience you can always increase those share numbers and share counts in the future.

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

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