Today we’re going to check out penny stocks, and should you go long or should you go short.
What’s the better approach to trading penny stocks?
A lot of people want to get into trading penny stocks.
- they’re cheaper stocks
- they can explode to the moon (you make a huge percentage of return on your investments)
- you don’t need as much capital.
There’s a lot of great attractiveness to trading penny stocks. But you have to understand how to trade these things.
There’s a lot of people that hate penny stocks because they’re cheap and they don’t usually go up. Other people love them because you can make a huge percentage of return.
Depending on where you are (black and white in the spectrum), you have to understand where do penny stocks fall into your portfolio. And we’re making these videos right now on penny stocks because we have an upcoming course.
New Course >>> Penny Stock Profits
This course is packed with the right ideas and mindsets to trading penny stocks and the right approach to trading these speculative plays.
When you get that course, you’ll also get our Penny Stock Case Studies course free included.
We’re doing a promotion and discount. Once that course is released, you’ll have a little bit of time to be able to get that course on sale.
Check out the course section at our website right now, and see what is the deal at this moment.
A lot of people don’t understand how to trade penny stocks because they don’t know where it fits in.
When you look at this portfolio allocation, this is what a lot of people do.
When they trade penny stocks, and they get into a penny stock, they put a hundred percent of their money into penny stocks.
Whereas the smarter approach is to allocate it in a certain spec part of your portfolio. If this is all your cash ($10,000), people put it all into penny stocks. Or you could look at it more like a triangle.
Here’s your $10,000 you put 100% right there all your money into penny stocks.
But if we take that triangle and move it over, you should have some longer-term investments. This is a larger chunk, and it’s near the base. Let’s say 40%-60% might be over here.
The next part could be swing trading, or it could be 30-60 day option trades – this could be about 25% of your investment. The allocation is different depending on your risk tolerance and risk levels.
And then the speculative part. Depending on your personality could be 5%-10%. This is where penny stocks fall in, and that’s what most people don’t get. It’s not that you can’t trade penny stocks.
Most people take the wrong approach, and they put 100% of their cash into penny stocks.
And then that penny stock fails, they get stuck, or they lose a bunch of money. After that, they say that they hate penny stocks.
Pro tip: understand that there’s the right approach to thinking about penny stocks and where they fit in.
And then there is also the wrong approach. Understand what’s going on and what’s happening.
Let’s take a look at the Trading Screen
When you look at these things, you have to understand how do you trade them. You can’t trade option trades on them because there’s not a ton of options on these penny stocks.
Reason #1 – they’re cheap
Reason #2 – they don’t trade a lot of volume
And here’s the question for you.
Do you go LONG or do you go SHORT?
That’s the big question. And the majority of the time, I will tell you most people get it wrong. They get into these stocks because they have a normal investment mindset. They buy the stock, and they hold it for multiple months or years to come. And they cash out.
With penny stocks, can you do that?
Yes, you can.
But the majority of them actually should be traded to the short side. Even guru penny stock trader Tim Sykes talks about this all the time.
They are the trash or the garbage of the stock market. If the stock price is an outstanding stock, typically, the price will reflect that. If you’re trading penny stocks, the majority of the time, they’re not great companies.
I mean there’s still huge companies, they’re still making a bunch of money or maybe losing a bunch of money, but they’re not the true long-term investment worthy – not for a hundred years or something like that.
In this case, if you look at the majority of these companies (let’s just start at $2), you can see most of the time that trend is going the downside.
Sometimes you’ll see some spikes up, but then you’ll see rollovers. Just look through this list.
Here’s my penny stock list between $2 and $15 trading about over 40,000 shares. And you can see the majority of these stocks on a month-to-month basis are going down. These are monthly charts. They’ll go up a little bit, but then they start coming down.
Look at this one. Going up until about $10. Here is a low price. And this is what most people dream up. They get into the stock over here, the stock goes high, and you make 5 or 6 times your investment. And then you cash out.
That is a nice movement. But then with time, eventually, that stock comes back. Understand what’s happening – as the majority of the time, these stocks are moving lower.
Just flip through them, and you’ll see that’s what’s happening. There might be one or two or a handful here where they’re moving to the upside. But looking at this most of the time, when you’re trading penny stocks, you’ll want to go short.
And that’s just simply because cheap things are cheap for a reason. They break. And in the stock market, I’m not saying that they don’t have a lot of money. These companies are worth quite a lot of money. But in the market place, if you’re trying to invest in the top 10%, these are not the best of the best in the stock market.
Most people are going to put their money into big companies like McDonald’s and Microsoft.
As you take a look at these, you’ll see the majority of the trend is lower. Even stocks that opened up at $21 a share, they continue to go lower. And sometimes they’re there for a decade.
Look at this one from 2009; it was about 35 cents, and now it’s about $2. It passed almost 10 years, and it’s still down there.
Here’s an interesting one.
It moved up, pulled back, moved up, pulled back. You can see what they do. Even if they hit like an $8 mark, they still pull back.
That’s the majority of these stocks. And we can go to further prices – right now here’s $2 range.
Let’s go to $6 range. You can see even the first one I pull up right here; it started a little bit higher but continues to sell-off. And most of them will be like that.
There, of course, will be a few like that look good, and some are making good movements. And of course, if you can get them around $1 or $2 and they’re powering higher, that would be great.
You can get a nice movement. And that’s what you’re doing when you’re trading penny stocks.
You can get in it right there. Ride the run and sell a little and then finally get out entirely because you know these things will eventually come back.
Just like here.
Some people got into it here, rode the run, and eventually came back. And then for about 20 years now, that thing is still down in the gutter – Sirius XM.
Look at it. This is a popular company, Sirius XM, in 2002, about 63 cents. And it’s still only about $6 a share.
That’s what happens with penny stocks. Most people don’t get it and don’t understand.
When you’re dealing with these kinds of companies, you’re in the cheap zone of trading stocks. So, should you go long, so should you go short?
The majority of the time, you’ll probably want to short these things. Can you trade only long on these stocks? Yeah, absolutely.
But you’re doing it for a small period, you’ll run or take that little bit of a run and know that they’re coming back.
You’ll want to take your profits into strength as it’s moving in your favor; you’re getting out a little bit at a time.
These are the things in concepts we talked about in our penny stock trading course.
Definitely check this course out >>> Penny Stock Profits Course
There’s a lot of great knowledge material in it all focusing on smaller priced stocks ($15 a share or less)
And I give you these mindsets to show you the different approaches to trading these cheaper stocks.
It’s not the same way that you would trade these big companies like Microsoft, Google, or Tesla.