Stock Assault 2.0
1. Pay Close Attention To the Trading Volume – Low trading volume is one of the fastest ways to lose your entire investment. Most penny stocks trade at a low volume compared to mid-caps and large-caps so a relatively low volume is to be expected. However, an extremely low volume can affect your ability to sell your shares fast enough to get out if the stock starts to tank. Many a poor soul has been caught with unwanted shares of a tanking penny stock and no way to sell them before they hit bottom.
While some experts suggest a threshold of at least an average of 300,000 – 1,000,000 shares traded a day, I believe it is more important to look at the average spread since this is really the bottom line to why volume is important. The spread is the difference between the ask and bid price, i.e the difference between the listed price of a stock and what it ends up actually selling for. If there is extremely low volume the spread will usually be quite high, i.e. you may not be able to sell you stock for what it is listed at. If the volume is really low and there is resistance to buy at the listed price, the price has to be lowered enough to temp someone to buy it. So, look at the average spread to determine whether or not the volume is actually TOO low.
EXTREMELY LOW VOLUME = A STOCK TO AVOID!
2. Be Especially Careful of Penny Stocks That Trade on the Pink Sheets
Contrary to popular belief, penny stocks can trade on any of the exchanges. Even the NYSE can have a penny stock listed from time to time. There are many penny stocks to be found on the NASDEQ and the AMEX. These 3 exchanges are the “big boys” and they are very tightly regulated by the SEC. Because of this scrutiny, there is far less chance for scams to occur with stocks listed on these larger exchanges. Companies that trade on these major exchanges also usually have more capitalization and better fundamentals overall (but not always!).
The majority of the penny stocks do not trade on the big exchanges. Instead, they trade in what I like to call “Wild West” of the stock market. The Wild West consists of the bulletin boards (OTCBB) and the pink sheets. While the OTCBB is part of the WIld West, it is a tamer portion. Most people don’t realize but the OTCBB is actually owned by the NASDEQ and they do have rules and requirements for listing. Where you get the most scandalous activity is on the pink sheets where the rules and regulations are practically non-existent. My main message here is there is a BIG difference between a stock trading on the OTCBB versus one trading on the pink sheets. Pink sheet stocks are much more risky.
3. Never Take Advice From “Free Penny Stock Newsletters”
Free picks from free penny stock newsletters are a haven for fraudsters looking to peddle their latest pump and dump scam. They are also fraught with people pretending to be an expert when in fact they are just blindly copying what the fraudsters are doing. “Free” can end up costing you your entire investment or a very large percentage of it if you invest in just one bad call. Even if these guys get lucky sometimes and pick a “winner” you can bet that their average will be in the negative, although they will find ways to hide that fact. This is the nature of the penny stock world.
You have now been duly warned about the dangers of investing your money in “free” penny stock picks. However, if you absolutely insist on on subscribing to and reading these free newsletters (which is largely a waste of valuable time that you could be using to make money!), at least make sure you do your own independent research before investing. Pay close attention to the first two tips I gave you. If the volume is extremely low and/or the stocks trade on the pink sheets, I strongly urge you to think long and hard before putting any money on that stock.
4. The Easiest Way To Find the Best Penny Stocks To Buy
By far the easiest way to find the best penny stocks to buy is to pay someone to send you PREMIUM stock picks. As opposed to free and useless, premium picks can make you a lot of money. While there is a nominal fee for this service, it is WELL worth the the fee if you find the right person. The profit you can make off of just one of these picks will pay for fee many times over, even if you are starting out with a small investment.
When I find a really good penny stock picker, I happily pay the nominal fee they charge and I’m thankful that they actually offer the service. Profitable penny stock picks are like handing someone gold. They require a lot of research and special abilities that only a few people possess. These abilities are not the same skills that traditional stock analysts use. A really good penny stock picker has to be a good investigative reporter with a nose to sniff out news and the truth before anyone else does (by the way, they usually don’t wear shiny new business suits!). They have to know how to piece together clues and get to the bottom of complicated issues. If you find a person like this who is willing to sell you premium penny stock picks, cherish them!
The way I find the best penny stock pickers is I first sign up for their service and then test their picks in a demo account – I never use real money to start off. This way, I can get a feel for how good their picks are and when I find a person with special talent for picking penny stocks, I invest real money. In this way, I minimize risk and I make a lot of money! I’ve been able to fund several non-profits and other special projects using the money I make off trading penny stocks.