All posts by Victor

What You Need to Know About Penny Stocks!

Penny stocks and low-priced shares are not right for everyone, despite the fact that they do have a lot of great attributes. They truly can turn a small investment into a large sum of money pretty quickly (but can just as quickly wipe those dollars out).

For many people, the potential for big rewards does not outweigh the risks. Be honest with yourself, and do not feel bad about walking away from the entire concept. In general, this is often the best choice, because MOST situations involving penny stocks result in many investors taking losses.

The good news: the reason most are wasting their investment dollars is they are buying the wrong stocks, at the wrong prices, and usually for the wrong reasons. These investment risks can be easily avoided, mainly by learning a little bit about the reality of trading penny stocks, which this article will show you.

For example, the vast majority of investors buy penny stocks that trade on the Dark Markets, and almost all of them will lose money. On the other hand, by getting involved with high-quality companies on the more serious and regulated exchanges, you pick investment choices from among legitimate and up-and-coming businesses.

These are mainly serious companies, with proven business models. The penny stocks listed on the best markets just so happen to be very new, or still small, and so are trading for pennies… until they eventually trade for dollars!

Watch out for Talking Heads

Thinking of Penny Stock Trading? Watch out for Talking Heads!

If you are someone who is thinking about investing or trading in Penny stocks, you must definitely learn about the story of Goff Corp. This is a classic story of the hyping of Penny stocks by promoters.

The company started trading in March 2013 at $0.37. Then, the price surged ahead to reach $0.58 within just 2 weeks – that’s a whopping 57% returns! But within the next month, the price of the stock cratered to $0.02 – an unbelievable -96% decline. Currently, the stock price is at a lifetime low of $0.00090.

3 talking heads

So, what exactly prompted the massive surge in the price of Goff Corp soon after its launch? The company did not have a record of even a cent in revenue – yet it moved by more than 50% in a short span. The answer is – it was cleverly managed scam. And the investors fell for it, line, hook, and sinker.

So, how do scammers inflate stock prices? They do not have a single way of doing it – they take a multi-pronged approach. Here’s the basic blueprint of such scams.

  • First, there would be a massive amount of paid promotion for the company. You will see blogs, news articles, TV hosts, and new and self-proclaimed ‘expert analysts’ saying that the penny stock is ‘poised for a surge’.
  • Then comes the second wave of promotions – other websites quote the previously published stories and say that the stock will have a high price target in a short while. For instance, Goff Corp was rumored to reach $4 ‘in a short time’ by stock hypesters and bloggers.
  • Quite soon, many unwitting, greedy, or naïve investors start to believe that the story of the ‘next big surge’ of the stock is true and invest in the stock.
  • Once the stock price starts to zoom ahead, original promotors and hypesters quickly exit their stake, leading to a free fall in the stock price.

The bottom-line? Watch out for the talking heads, as they MAY NOT have your well-being in mind.

When a stock is getting aggressively promoted, it is always best to take a step back and research more about the company. You must check the financial status, important financial ratios, annual reports, as well as many more things before finally investing in the company. A detailed explanation of this checklist for shortlisting genuine penny stock winners is covered in our popular course – How to Become a Professional Penny Stock Trader.

Even if the disclaimers say that the funding for the reports regarding the penny stock company was done by a third party, you must assume that the company is indirectly involved in the funding. Here is the general rule of thumb – If the TV or news reporter speaks too much about the future price surge of the penny stock and very little about the company financials, numbers, and roadmap for accomplishing that price, it is 99% guaranteed to be a scam!

Another important point to note is that well-known websites and credible news and TV channels do not usually talk about ‘possible upcoming surge’ of penny stocks unless it is backed by strong reasons and company financials.

Don’t Fall in Love With a Stock Unless You Want to Own it Long Term

Don’t Fall in Love With a Stock Unless You Want to Own it Long Term

Almost anyone can now buy Penny Stocks, thanks to their cheap prices. But not fall in love with the stock unless it has been well-vetted and you plan to own it for a long time.

Don’t Hold On to Stocks Blindly

Many renowned investors have warned against blindly holding onto stocks. Peter Lynch said, “Never fall in love with a stock; always have an open mind”. ‘Oracle of Omaha’, Warren Buffet also concurs with this idea. He said, “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

This simply means that if your penny stock investment or trade doesn’t pan out, it is best to cut the losses. Instead of holding onto losing trades and ‘throwing good money after bad’, it is always ideal to choose another trade.

Before Falling in Love with Stocks, Understand the Reasons Why

Never fall in love with your stocks unless you have clear reasons to have confidence in the stock.

#1 Always choose to trade or invest in stocks that are fundamentally sound. This way, you will be in a position to hold them for a long time – be it months or years.

The tips for identifying fundamentally sound penny stocks are covered in our professional penny stock course.

#2 If the valuation criteria used by you for choosing the stock still holds true, you can continue to hold on to the stock. For example, if you chose a stock because of its low P/E ratio compared to the market, you can hold onto the stock if that P/E ratio is still well below the market. On the other hand, if the P/E is well above market, it may be time to sell. So, falling in love with such stocks may result in financial losses.

#3 Luck never holds, but having a disciplined approach, good judgement, independence of mind, good instinct, decisiveness, and self-knowledge will help you choose penny stock winners. There are also some top secret criteria used by expert traders for selecting penny stock winners. These include technical and fundamental analysis and access to certain exclusive resources. You can learn more about them from the professional penny stock course.

Love May Not Always Be Reciprocated – Immediately

As Tweedy Browne Co says, “The stocks we own don’t know we own them and therefore do not behave in ways that are always consistent with our near-term interests”

This simply means that even if you choose the stock after vetting and scrutiny, it may not give you great returns within the timeframe you envisioned, just because you fell in love with the stock. The markets may change in the blink of an eye – be it the latest political turmoil, unexpected scandal, lawsuits, or even due to extreme weather.

But the good news is, if the stock that you have chosen have rock-solid fundamentals, amazing management team, and checks all the criteria of penny stock winners (as explained in our professional penny stock course), sooner or later, it would give amazing returns. It is just a matter of holding on.

As Buffet says for such stocks – “Our favorite holding period is forever.”

How Much Do Day Traders Make Per Year

How Much Do Day Traders Make Per Year

It is true that Day trading is one of the very few professions that can give massive returns. On the other hand, it is also the profession in which a very large group of traders fail to make money.

The 4 Factors That Influence How Much Money Can Be Made From Day Trading

How much potential returns you can make from day trading depends on the following four factors

The Type of Market: The market that you trade can vary – be it stocks, futures, or forex. Each market has its own set of distinctive advantages. For instance, it is cheaper to start trading in Forex or Futures when compared to stocks, as stocks are capital intensive.

Your Initial Investment: This is basically how much money you invest in order to start day trading. The more you can invest initially, the better would be the returns. For instance, a person who starts trading with $3000 will have a lesser income potential than a person who starts day trading with say, $30,000.

Your Trading Knowledge: If you plan to make consistent returns from day trading, you must invest a lot of time in your trading education. If you dedicate to trading education full-time, it would most likely take you a year or more. On the other hand, if you can spare only part-time, it may take you a few years for developing consistency in returns.

Your Personality and Strategies: The trading strategies used by you, as well as your personality – whether you are patient and disciplined – also impacts your return potential.

How Much Money Can You Make As A Day Trader?

Based on certain mathematical calculations we can arrive at the potential money that you can make as a day trader. For those calculations, here are the basic assumptions.

  • The risk-reward ratio is assumed to be 1.5:1
  • The win rate is assumed to be 50% – which means that 50% of trades are anticipated to be profitable while the remaining 50% is anticipated to be not profitable.
  • The number of trades per day is assumed to be 5
  • The leverage is assumed to be 1:4
  • The initial investment amount is assumed to be $35,000

Calculations

With a 4:1 leverage and an initial amount of $35,000, your buying power would be $140,000 (4 x $35,000). The maximum you can risk on each trade is $350 (1% of $35,000). At 1.5:1 risk-reward, assume that you make $0.15 on winning trades while you lose $0.10 on losing trades. At an average of 5 trades a day and 20 trading days a month, you roughly make 100 trades per month. As the stop-loss is $0.10, you can take a position size of 3500 shares.

Now, a good trading system is assumed to win 50% of the time. This means that

Profits Made = 50 x $0.15 x 3500 shares = $26,250

Losses Made = 50 x $0.10 x 3500 shares = ($17,500)

The net value = $8750 (excluding commissions and fees).

Assume that the cost per trade is $20. Then, your commission cost = 100 trades x $20 =$2000.

This brings your total money for the month to a total of $6750 ($8750 – $2000), which is nearly 19.2% monthly return.

However, be warned that highly leveraged trades can sometimes cause massive losses.

Penny Stocks What Does Risk vs Rewards Mean

Penny Stocks What Does Risk vs Rewards Mean

Penny stocks are well known for their high risk-reward. But what exactly does this mean? Let’s break it down to understand it better.

Like any investment vehicle, penny stocks too, have some inherent risk. However, there is also the scope for massive rewards in the case of penny stocks.

Penny Stock –Risks

Following are the major risks associated with penny stocks.

Pump and dump schemes: Pump and dump basically involve posting false and misleading positive statements of a penny stock and artificially inflating its price. Then, these individuals sell the cheaply purchased stock at a higher price. Non-reputable penny stock newsletters, social media, and email mailing lists are typically used for distributing these pump and dump schemes. Unsuspecting investors buy these stocks and lose a massive amount of money in the process.

High Price Swings: Typically, the price swings in stocks happen only to a limited extent. But in the case of penny stocks, even a single news can cause major percentage moves in its prices. Penny stock prices can surge to double or more of its value or lose double or more of their value in a matter of seconds, minutes, hours or days.

Short and Distort Schemes: This is actually the opposite of pump and dump scheme. Here, scammers short sell the penny stock and then spread false rumors regarding the stock, causing its price to plummet. Then they make profits while genuine investors end up losing a lot of money.

Scams: There are many scams prevailing in penny stocks. In case of mining scams, the company claims to have found gold or diamond mines which eventually turns out to be false. The no-net-sales scam stipulates that investors should not sell the stock for a specified period of time. During this time, scammers make profits and exit the stock while investors lose money.

Penny Stock –Rewards

Penny stocks also have good reward potential.

Huge profits: Thanks to the wild swings in prices, you can potentially make enormous returns. You just have to make sure to time the buying and selling of stocks based on technical indicators and signals.

Big Winners: Many excellent companies started off as penny stocks. There are still many undiscovered gems of companies currently trading as penny stocks. Identifying these companies can benefit you immensely in the long-term.

Faster Profits: Penny Stocks can yield big profits quicker than regular stocks. For regular stocks, it may take years while penny stocks can give you similar rewards in just days or even hours.

Small Investments Can Double: Investing in penny stocks do not require a huge amount of money. They can easily double within a smaller time-period and are also accessible to most investors. This makes it one of the best investment instruments.

As you can see, Penny stocks have both risks and rewards. When someone talks about risk-reward of penny stocks, they are typically referring to the risks and rewards that are listed above, associated with penny stock investment. By gaining the necessary knowledge in penny stock investing, you can minimize risks and maximize rewards. Happy trading!

Penny stocks are well known for their high risk-reward. But what exactly does this mean? Let’s break it down to understand it better.

Like any investment vehicle, penny stocks too, have some inherent risk. However, there is also the scope for massive rewards in the case of penny stocks.

Penny Stock –Risks

Following are the major risks associated with penny stocks.

Pump and dump schemes: Pump and dump basically involve posting false and misleading positive statements of a penny stock and artificially inflating its price. Then, these individuals sell the cheaply purchased stock at a higher price. Non-reputable penny stock newsletters, social media, and email mailing lists are typically used for distributing these pump and dump schemes. Unsuspecting investors buy these stocks and lose a massive amount of money in the process.

High Price Swings: Typically, the price swings in stocks happen only to a limited extent. But in the case of penny stocks, even a single news can cause major percentage moves in its prices. Penny stock prices can surge to double or more of its value or lose double or more of their value in a matter of seconds, minutes, hours or days.

Short and Distort Schemes: This is actually the opposite of pump and dump scheme. Here, scammers short sell the penny stock and then spread false rumors regarding the stock, causing its price to plummet. Then they make profits while genuine investors end up losing a lot of money.

Scams: There are many scams prevailing in penny stocks. In case of mining scams, the company claims to have found gold or diamond mines which eventually turns out to be false. The no-net-sales scam stipulates that investors should not sell the stock for a specified period of time. During this time, scammers make profits and exit the stock while investors lose money.

Penny Stock –Rewards

Penny stocks also have good reward potential.

Huge profits: Thanks to the wild swings in prices, you can potentially make enormous returns. You just have to make sure to time the buying and selling of stocks based on technical indicators and signals.

Big Winners: Many excellent companies started off as penny stocks. There are still many undiscovered gems of companies currently trading as penny stocks. Identifying these companies can benefit you immensely in the long-term.

Faster Profits: Penny Stocks can yield big profits quicker than regular stocks. For regular stocks, it may take years while penny stocks can give you similar rewards in just days or even hours.

Small Investments Can Double: Investing in penny stocks do not require a huge amount of money. They can easily double within a smaller time-period and are also accessible to most investors. This makes it one of the best investment instruments.

As you can see, Penny stocks have both risks and rewards. When someone talks about risk-reward of penny stocks, they are typically referring to the risks and rewards that are listed above, associated with penny stock investment. By gaining the necessary knowledge in penny stock investing, you can minimize risks and maximize rewards. Happy trading!

What Are Penny Stock Screeners

What Are Penny Stock Screeners

One of the most invaluable tools of any penny stock trader is the stock screener. So, what is a stock screener and how exactly do they help penny stock traders? Here’s a quick overview.

There are currently thousands of penny stocks available for trading. Among them, very few of them are potential winners. But choosing these potential winners is not an easy feat. You have to perform intensive research on the penny stock before deciding to trade or invest in it. This is where stock screeners gain importance.

What are Penny Stock Screeners?

Stock screeners are automated online tools that help in filtering out the stocks based on user-defined parameters and metrics. Knowing how to effectively utilize stock screeners would cut down your efforts in stock research by a great percentage.

For instance, if you want a list of stocks whose price is between 50 cents and 75 cents, you need to just enter this criterion into the screener. The screener then disregards every other stock that doesn’t satisfy this criterion and quickly displays the stocks those share prices meet your criteria.

There are many free and paid stock screeners available for use. The figure below shows the stock screener from yahoo finance.

screeners

Benefits of Using Stock Screeners

Following are the advantages of using stock screeners.

Helps generate ideas: With the help of stock screeners, you can identify many solid and undervalued investment ideas. This is obviously a better alternative than reading about every stock from A-Z.

Helps avoid emotional entanglements: By using penny stock screeners, you can eliminate emotional entanglements and bias regarding any stock. The whole process becomes mechanical, allowing you to simply make decisions based on merits of the stock than emotions.

Quick and Easy to Use and Setup: It is relatively quick and easy to set up stock screeners. After a brief upfront work, you can simply hit enter on the stock screener to get the customized list of stocks of your preference.

Popular Search Criteria of Stock Screeners

Following are the popular search criteria of stock screeners.

Stock Price: This is one of the easiest methods for screening companies.

Exchange: To avoid lo-quality penny stock, it is best to choose stocks based on the exchanges. The various exchanges in which penny stocks are available is covered in depth in the professional penny stock course.

Type of Industry: This is another good way to screen penny stocks. Screening by the industry gives lesser results, which helps you to quickly identify possible penny stock winners faster.

New Highs: Some screeners allow you to screen penny stocks that have formed new 52-week highs.

Trading volume: This helps in screening for stocks with huge increases in the buying and selling activity. For instance, the screener can identify companies that have 3-times the average trading volume.

Volatility: Using stock screeners, you can choose stocks with the specific amount of volatility depending on your risk appetite.

Fundamental Criteria: Some traders prefer to trade stocks which have fulfilled certain fundamental criteria. For example, traders prefer stocks with a specific value for price to earnings (P/E) ratio.

As you can see, stock screeners are quite helpful for identifying potential penny stock winners. You can learn more about stock screeners and a list of useful stock screeners from the professional penny stock course.

Using Trading Charts in Analyzing Profitable Stocks

The following patterns are some of the ones I’ve found which seem to be more reliable when it comes to low-volume penny stock shares. After all,when a technical analysis indicator can’t be trusted, it becomes useless – or worse, could cost you thousands of dollars if it misleads you.

Bottoming Out Pattern
This type of pattern emerges after a long, sustained slide in the share price. The trend goes from downward over months, to sideways (usually for a couple weeks).

When this occurs coincidentally with a sudden increase in trading volume, especially if this is in line with an oversold condition, the shares may be about to enter a long, sustained recovery in price. Often, the shares which display a bottoming out pattern will be some of the best long term holds.

Price Dips
Since penny stocks are often thinly traded, they can have massive price volatility simply because of an imbalance in buy and sell orders. This can lead to shares dipping significantly when sellers outweigh buyers.

You will recognize a price dip pattern when the penny stock suddenly drops but does so on no news and on very low trading volume. The opportunity with price dips is that they usually reverse, and typically within hours, if not minutes.

The way some investors play (and benefit from) price dips, is to be in the right place at the right time. By keeping a buy order on a thinly-traded penny stock, which is significantly below the recent or current price, you may catch any shares which “fall through the cracks.”

By this I mean when someone puts a market order to sell, if that trade is much greater than the current line-up of buyers, it may result in some of the shares which are being sold going for significantly lower prices. Your open buy order may get some of these shares.

Topping Out Pattern
This is similar (only in reverse) to the bottoming out pattern. Shares have climbed for a long time and now appear to be leveling off, or trading sideways.

While this may just be the stock “taking a breather” before resuming the advance, when it appears in a penny stock, coincident with a declining daily trading volume and an overbought condition, the profit takers may be preparing to move in. In other words, shareholders start to sell to capture these new, higher prices, while buying dries up, the end result of which is tumbling share prices.

Penny Stock Beginners Guide: How To Start Trading

You need to find a source which is reliable and that you trust, and use that as a jumping off point to finding potential penny stock investments. In fact, you should probably have many sources.

NEVER trust any source 100 percent. Instead, use them simply to provide suggestions of prospective companies to watch. Then conduct your own analysis, make your own trades, and take full responsibility for the results.

You can find many stocks yourself, by using a stock screener such as FinViz.com (Financial Visibility). This is an example of a great online tool for uncovering potential investments, which you will better understand how to use the more you try it out, the more you Paper Trade, and the more you learn about investing.

There are also great stock screeners online for free through sites such as Google, and most major financial portals. If you want stocks trading at $3 or less, in the precious metals industry, you can set the screener to return only those results — this can then act as a great shortlist, through which you can find the penny stocks you want to trade. How does blockchain technology get involved?

Do you recognize a great stock pattern

Do You Recognize A Great Stock Pattern

Stock pattern analysis is something that is usually performed by technical stock traders. However, even ordinary investors can hugely benefit from understanding stock patterns.

Not an Exact Science

Before we delve deeper into stock pattern and their analysis, it is important to understand that it is not an exact science. Many times, even the best technical traders cannot predict the future price movements of the stock based on the chart patterns.

However, understanding stock patterns and recognizing them can definitely give you an edge over the other (regular) investors who do not perform stock pattern analysis. Even if the buy-and-sell decisions may not turn out to be accurate every time, they often prove to be true.

What is a Stock Pattern?

Stock patterns are clear and distinctive patterns that are believed to be capable of signaling the future movements in the price of the stock. The traders make use of these patterns for identifying prevailing trends and for predicting whether the trend would reverse or continue. Typically, in the case of stock patterns, history repeats itself.

Important Reversal and Continuation Patterns

Over a period of time, be it days, weeks, months, or years, there are clear reversal and continuation patterns formed on stock charts. Following are some of the important chart patterns used by technical traders.

Cup and Handle Pattern: This pattern appears like a cup and a handle. This is a bullish continuation pattern. This pattern can be formed within a few months to a year or more.

Rounding Bottom Pattern: Also known as Saucer Bottom, this is a bullish reversal pattern. When this pattern is formed, it implies that the prevailing downtrend of the stock price may be reversed to an uptrend.

Head and Shoulders Pattern: This is a bearish reversal pattern which implies the reversal of a prevailing uptrend to a downtrend.

Inverted Head and Shoulders Pattern: This is a bullish reversal pattern which implies the reversal of a prevailing downtrend to an uptrend.

Flags and Pennants: These are continuation patterns. They are usually formed within a few weeks or months. After the pattern is confirmed, prices move in the same direction as the initial trend.

Double Top Pattern: This is a bearish reversal pattern. It is formed when the resistance level is tested by the price movement two times, without breaking out of it. The price then reverses its uptrend and plunges downward.

Double Bottom Pattern: This is a bullish reversal pattern. It is formed when the support level is tested by the price movement two times, without breaking down from it. The price then reverses its downtrend and surges upwards.

Gaps: Whenever there is a huge price difference between two periods (be it two days, two weeks, or even two months), it forms empty spaces between the two trading periods. This is called as a gap. Whenever a gap is formed, it implies that there is something significant that happened to the stock between the two trading periods. It could be a major earnings announcement, lawsuit, any new product launch, change in company management etc.

In addition to these patterns, there are also patterns like Triple Tops and Triple Bottoms, Triangle Pattern, Wedge Pattern etc.

Some of the important chart patterns are covered in detail in the professional penny stock course, with illustrations and examples for better understanding.

Why is Research So Important

Why is Research So Important

Imagine you are buying a car. You would not simply go in and get the first car you see, right? You would first try out a few of the cars which fit into your budget and then finally zero in on the best one.

Well, it is not much different in the case of stocks too. Before buying a stock, it is important to perform adequate research in order to zero in on the stock that would give you good returns.

The Two Types of Research

Before finalizing a stock to trade, there are two types of research done in the stock market. They are fundamental research and technical research.

Fundamental Research: Here, the economic aspects of the company and its impact on the company’s health are analyzed. This is typically performed for stocks that are intended as a long-term investment. The various aspects of fundamental research that are analyzed for determining whether the company is a good or bad stock are

  • Financial Data like balance sheets, results, assets and liabilities, revenue model, etc
  • Industry Trends, future scope of the industry, and various the factors that affect the company’s growth rate.
  • Competitions in the market in order to determine the strength of the company and its future growth prospects.
  • Updates on economic events, Return on Equity (RoE), and Return on Assets (RoA).

Technical Research: Here, the stock price is given more emphasis. The future prices are predicted using the historical data of price. The various aspects of technical research that are analyzed for determining whether the company is a good or bad stock are

  • Price movements and stock patterns
  • Market psychology

Why Should You Perform Research?

There are many reasons why performing research is important

  • Research helps to identify whether the company is having less debt, has good customer satisfaction, has sufficient revenue, has a good valuation, and is doing the necessary investments for the future.
  • Research helps in identifying whether the company is stable and has the potential for continued growth.
  • The stock market is inherently risky. Hence, if you want to make good yields, you must take analytical informed decisions through research.
  • Without research, you would be susceptible to make emotional decisions like taking heavy positions and investing a lot of money in unknown companies. These could prove to be quite disastrous.
  • Research helps in avoiding herd mentality. Many times, the decision to invest in stocks is influenced by the input from acquaintances and friends. In doing proper research, the decisions would be automatically based on personal risk capacities than blindly following the herd.
  • Research helps in building discipline. With proper research, it would be possible for you to establish a proper trading plan and clearly know when to book profits and losses. This helps to avoid panic when trades do not go in the same direction as you intended. It also helps to avoid greed if a trade goes well. You would be able to retain the profits made and exit the trades at a good level. All these build disciplines, which is the very cornerstone for profitable trading.