penny stocks

Trading Penny stocks – A guide to help with getting started

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Learning to trading penny stocks basic help guide

 

 

What are penny stocks?

Penny stocks are companies that are not listed on a major exchange like the Nasdaq. Some people consider any stocks under $5 a penny stock while others consider those micro-cap stocks and won’t call a stock a penny stock unless it is trading under $1 a share. Penny stocks are usually companies that fall short of the basic requirements to up-list on a major exchange.

How can you buy penny stocks?

Some brokers actually won’t let you buy penny stocks because they believe the risks are too high and they don’t want to pay the extra fees that brokers have to pay with OTC stocks. We recommend ordering a brokerage account with Etrade. There are a lot of people starting out that like Robinhood because there are no broker fees but you are very limited with the stocks that you can buy with Robinhood. Etrade or Scottrade are much better brokers to use.

What are the top or best penny stocks to buy?

This really comes down to individual trading style. We like low float stocks because they have the potential to move the quickest. We also pay attention to what sectors are hot. A lot of times entire sectors will move at the same time. Look for hints in SEC filings. Remember most penny stocks move based on market awareness and exposure and not necessarily how solid a company is.

Where can you find a list of penny stocks?

We have several lists of different type of penny stocks listed on this site. You can click on any of the drop-down list above on the menu and find the sector you are looking for. Also, check out our penny stocks of the month page. This will give you some great information on which penny stocks are hot!

Penny Stock investing is sometimes considered one of the trickiest ventures and if a person is not careful they could end up Losing a lot of money. Some people view penny stock investing as a way of diversifying their investments. It is a very risky investment that does not require a lot of money to do.

Pointers to buyers

For beginners and rookies, it is important to find out why a stock is considered penny stock in the first place. There is usually a reason why stocks are priced so low. In most cases, the companies are not well enough established yet.

Penny stocks are high risk and high reward. You can start off with a small amount of money and if you play your cards right, you could end up making a lot of money. This is because you don’t need a lot of start-up money to begin trading. Financial advisers are keen to inform beginners not to put all their money into one bag. While these penny stocks can be a noble way of quantifying investments, there can be risks too and therefore it is advisable to split investments to be on the safe side.

How to choose a brokerage firm for penny stock investing

First and foremost, do a thorough research to ascertain that whoever you are dealing with is a legit firm. There are so many fraudsters out there targeting rookies and new investors and no one wish to begin on a wrong footing.

Take time to find a brokerage firm with a proven track record in sorting out its finances and taking care of its revenues. Transparency is paramount especially in this form of investment and if a company is not willing to be clear with information then certainly something fishy is going on. The same company must be open with its finances to make it clear for potential investors and at least to win their confidence. No one wishes to lose their hard-earned money easily.

For the sake of saving time, enquire from friends who perhaps might have had successful spells with their brokerage firms. A friend will always be handy to provide clear information without being bias. Penny stock investing can be quite appealing especially when some companies have been mentioned but the history of the company should be put under the microscope. Companies come and go and when they do, they disappear with investors money and there is nothing to be done.

Beware of hidden broker charges that may pop up later after signing all the paperwork. Your chosen broker must put everything on the table and if possible an attorney must be present to oversee any transaction or as a signatory whenever there is doubt.

Here is a list of basic penny stocks terms

penny stocks terms
Reverse Split or R/S :  This is when company reduces the total number of its outstanding shares.  So if there were 100,000 shares outstanding and they reduced it to 1,000 that would be a 100-1 reverse split. The stock price then would go by 100 times. So the value you hold remains the same. Penny Stocks companies will apply reverse splits to the outstanding  shares but not to the Authorized shares. That is a huge red flag.

Common Stock: This are the shares that are commonly owned and/or traded by the public of a stock. They are different than the preferred shares.

Preferred Stock: A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights. Some penny stocks allow these to be converted to common stock which can lead to major sell offs.

Outstanding Shares: This is the number of shares that currently can be traded.

Authorized Shares: This is the number of shares that a company is currently authorized to trade.  Penny stocks companies with a high number of authorized shares can issue stock quickly and increase the outstanding shares. This dilutes the value of outstanding shares.

Share Structure:  This is the number of outstanding shares and the number of authorized shares. When you hear people say this stock has a great share structure it typically means it won’t take much volume to move the stock.

Spread: This is the gap between the Ask and the Bid. If stocks have too big of gap or a large spread they are a lot more risky.  If you buy on the ask and have to sell on the bid you could lose a lot of money fast.

Averaging Down: This is when an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases.

Bear Market: This is trading talk for the stock market being in a downtrend, or a period of falling stock prices. This is the opposite of a bull market.

Beta: A measurement of the relationship between the price of a stock and the movement of the whole market. If stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points and vice versa.

Blue Chip Stocks: These are the large, industry leading companies. They offer a stable record of significant dividend payments and have a reputation of sound fiscal management. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.

Bull Market: This is when the stock market as a whole is in a prolonged period of increasing stock prices. Opposite of a bear market.

Broker: A person who buys or sells an investment for you in exchange for a fee (a commission). Here is Tim’s favorite broker. (LINK)

Day Trading: The practice of buying and selling within the same trading day, before the close of the markets on that day. This is what Tim typically does, although he does have a long-term portfolio as well. Traders that participate in day trading are often called “active traders” or “day traders.”

Dividend: this is a portion of a company’s earnings that is paid to shareholders, or people that own hat company’s stock, on a quarterly or annual basis. Not all company’s do this.

Exchange: An exchange is a place in which different investments are traded. The most well-known in the United States are the New York Stock Exchange and the Nasdaq.

Execution: When an order to buy or sell has been completed. If you put in an order to sell 100 shares, this means that all 100 shares have been sold.

Hedge: This is used to limit your losses. You can do this by taking an offsetting position. For example, if you hold 100 shares of XYZ, you could short the stock or futures positions on the stock.

Index: An index is a benchmark which is used as a reference marker for traders and portfolio managers. A 10% may sound good, but if the market index returned 12%, then you didn’t do very well since you could have just invested in an index fund and saved time by not trading frequently. Examples are the Dow Jones Industrial Average and Standard & Poor’s 500.

Initial Public Offering (IPO): The first sale or offering of a stock by a company to the public, rather than  just being owned by private or inside investors.

Margin: A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan, and the price of the securities, is called the margin.

Moving Average: A stock’s average price-per-share during a specific period of time. Some time frames are 50 and 200 day moving averages.

Order: An investor’s bid to buy or sell a certain amount of stock or option contracts. You have to put an order in to buy or sell 100 shares of stock.

Portfolio: A collection of investments owned by an investor. You can have as little as one stock in a portfolio to an infinite amount of stocks.

Quote: Information on a stock’s latest trading  price. This is sometimes delayed by 20 minutes unless you are using an actual broker trading platform.

Rally: A rapid increase in the general price level of the market or of the price of a stock.

Sector: A group of stocks that are in the same business. An example would be the “Technology” sector including companies like Apple and Microsoft.

Spread: This is the difference between the bid and the ask prices of a stock, or the amount someone is willing to buy it and someone is willing to sell it.

Stock Symbol: A one-character to three-character, alphabetic root symbol, which represents a publically traded company on a stock exchange. Apple’s stock symbol is AAPL.

Volatility: This refers to the price movements of a stock or the stock market as a whole. Highly volatile stocks are ones with extreme daily up and down movements and wide intraday trading ranges. This is often common with stocks that are thinly traded, or have low trading volumes. This is also common with the stocks that Tim trades.

Volume: The number of shares of stock traded during a particular time period, normally measured in average daily trading volume.

 

Instructions on how to buy penny stocks

Welcome to our free training on getting started in buying penny stocks. In this training, I plan on providing investors and traders with enough information to give them a foundation to build on. Penny stocks and stocks, in general, take a lot of effort, skill, and a bit of luck. Here is a basic and simple step by step process to help you get started.

The first thing I would recommend doing if you haven’t already is making sure you are in the right mindset. Jump on YouTube. Listen to motivational speakers like Tony Robbins, Will Smith, and others. You want to be in the right mindset to attract success. Once you are in the correct mindset define what success is for you. Get out a piece of paper and Detail exactly what your goals are. Attach emotion to those goals. Put those goals in a place where you can see them daily. Start every day with Positive Affirmations. You need to believe you are worthy of your goals.

Once you have defined and committed yourself to your goals and that trading penny stocks is a set to help you accomplish those goals you are ready to begin the next steps.

Setting up a brokerage account.

You will need this to need this to be able to trade stocks. There are different brokerage accounts that work better for different purposes. If you are looking to trade penny stocks the best brokerage accounts are Etrade and TD Ameritrade(they allow you to trade more penny stocks). If you have limited funds and an account under $300 you can consider Robinhood. Robinhood doesn’t charge broker commission so that will save you $7-10 a trade but the downside is that they don’t allow you to trade OTC stocks as the other brokerages.

 

Websites and resources that will help

OTCmarkets.com this is a website that provides information about each company. Everything from charts, Share Structure, to SEC filings and press releases. This site is one of the most helpful and important you can use.

Stockcharts.com This site provides free charts to use. It allows you to look at a bunch of different technical signals which can help you get an idea of what the stock price will do next.

https://www.sec.gov/edgar/searchedgar/companysearch.html This is the URL where you can search and find all the SEC filings for a company. SEC filings will be used to find out what the stock is really doing.  What type of revenue as well as red flags a stock may have.

Ihub– This is a message board/ forum website that a lot of investors use. We will show how you can use this site later to expose pumpers.

Twitter/Instagram/facebook These social sites are good to join and keep connected as well. They help you keep up to date with what is going on and which traders/pumpers are hot.

You will also want to find access to level 2. Level 2 is very important when it comes to trading stocks. Some people also use different scanners to find stocks that are ready to break out. There are many YouTube videos on how to use these scanners. Personally, I have always networked with traders and investors who already were great at reading scanners. Networking allows you to work as efficiently as possible.

Make sure you sign up for our penny stocks watch list. We not only send out alerts of stocks ready to break out from time to time but we also send out weekly watch list for stocks that either have rumors of future news, look great chart wise, or our scanners have picked them out as the potential break out stocks.

 

Once you receive the penny stocks on our watch list it is import to check them out for yourself. I am going to jump right into using OTCmarkets. If you run across any terms you are not familiar with please go visit our stock market terms page. There are several ways to approach investigating a stock. Some may choose to check out Facebook or Twitter first to see if people are already pumping it. Others will jump on IHUB. Some people they will look immediately at the chart. For these steps, we will be going to OTCmarkets first with the assumption that the chart already looks promising.

Using Otcmarkets.com

Otc Markets search

Once you have logged in select a stock that you want to search. Type the name or ticker symbol into the top left. We will be using the example of MJNA. Click on the company profile page.

Highlighted and circled in red on the image are some important things we will want to quickly locate. 

OTC markets company profile

A. The company website. I always start by making sure the company has a website and that they keep it updated. If they forget to renew their domains or they let their website go it can be a huge warning sign

B. Make sure the company is current. There are several different types of stocks depending on how transparent they are willing to be with the company fillings. Companies should always be able to keep a status. Companies that are Pink limited, Pink no information, or grey market are a lot more risky and a lot of times hiding that information so they can take advantage of people.

C. This is the share structure of a company. First thing I look at is the market cap. This is the total market value of the company’s outstanding shares. In penny stocks, most of these companies are extremely overpriced. If a company has a market cap of hundreds of millions but only have a net income of $20,000 that should raise some red flags. Keep in mind most these companies are set up just to get people excited so they will buy shares. Most of these companies have zero chance of ever becoming strong legitimate companies. That doesn’t mean you can make money trading them is you understand the psychology behind how they work. The next important thing to pay attention to is authorized shares. Companies with a huge number of Authorized shares can at any time start printing more stock with will dilute the shareholder value and make the stock go down. It is always good to check and make sure the company’s outstanding shares haven’t gone up a ton in the past couple of years. If they have this is a huge red flag as well.

D. This is a link to the Transfer Agent. You will want to call the TA and verify all the information you are seeing. Some company’s gag their Transfer Agencies. That should raise red flags if they do.

E. This is a section where you can find out about the company’s history when it comes to reverse splits. When a company does a share decrease it is known as a reverse split. If a penny stocks company only applies the share decrease to the Outstanding shares and doesn’t apply an equal increase to the Authorized shares this is a huge negative thing. It means the company plans on diluting more shareholder value and the stock most likely will come down a long way. Reverse Split and Authorized share increase are very bad news for penny stocks. If the company has a history of Reverse Splits (Share decreases) you may want to avoid that stock altogether.

The next thing we want to look at is Filings and Disclosures. You can click on the left side tab. Demonstrated in this photo here. 

 

 

SEC filings locator

The most important things to locate first are the earning statements and well as read any possible important updates.

A.  8-k these are good to read through quickly to see if the company has recently filed to have a reserve split or an Authorized share increase. Be very cautious if you find out the company has recently had a Reverse Split of an Authorized Share Increase.

B. This is the last reported quarterly report for the company. Double check this is updated and accurate on the SEC filings site mentioned above. Some companies choose to file with OTC and not with the SEC. I am always a little bit cautious of those companies.

The next step from here will be looking at the SEC Fillings. On our SEC filings page, we will be explaining briefly some important things to look for.

 

 

Introduction to reading sec filings on penny stocks

When I ask most investors or traders what they struggle with the most it is understanding SEC filings.  You can search a company’s SEC filings by going here.

https://www.sec.gov/edgar/searchedgar/companysearch.html

SEC filings can be confusing at first but they are very important to understand. Since most people are busy and don’t have the time to read through pages after pages of filling information, it is important to find an efficient and fast way to locate important information.

Here are some of the most common forms you will see and a brief description of what they are.

  • 10-k This is comprehensive annual report or yearly analysis of a company
  • 10-Q This is an unaudited Quarterly report that updates the 10-k
  • 20-F This is the financial report foreign countries must file if they trade on US exchanges since they don’t file a 10-k
  • 8-k  Report Filed announcing events investors should know about like both good and bad. This is where you will most likely find Authorized share increases or reverse splits announced. Also, acquisitions and company progress as well as company updates.
  • PRE 14C Form PREC14C, “preliminary information statements – contested solicitations”, is required under Section 14(c) of the Securities Exchange Act of 1934. This form must be filed with the SEC 10 days before definitive information statements are distributed to shareholders and helps the SEC protect shareholders’ rights by ensuring that they receive key information, clearly presented. This form can give you a heads up about an upcoming Reverse Split.
  • 13D This form reveals who owns the most of a company’s shares, Their background information, criminal history and the type of relationship the owner of the shares has to the company. It will explain why the transaction is taking place, what class of security, and where the money is coming from to make the purchase.
  • Form 144 This is a notice of intent to sell restricted stock which us usually held by corporate insiders or affiliates that obtain the stock outside of a public offering.
  • Form 3,4,5 Corporate insiders that own more than 10% of a stock must file special forms to obtain, buy, or sell shares of a company’s stock. These forms are used to notify investors when this happens.
  • Form NT This is when the company won’t be needs an extension because they won’t be able to file a 10-Q or 10-K in time. This gives them an extra 15 days to file the 10-k and 10-Q and keep there current status. Often times you will see it as “NT 10-k” or “NT 10-q”These are just a few of some of the most common forms and fillings that you will see. You can find a full list of forms with a more detailed description at https://www.sec.gov/formsNow that you are familiar with what some of the forms and filings mean it is time to learn how to quickly look through some of these filings to find important information.
  • Quickly looking at the 10-k and 10-Q
  • First thing you want to do is locate the business summary.
    This is where you will be able to find what the company does. I will describe the company’s operations, it will tell you about the company’s history, trademarks, patents, and marketing strategy. This is important to look at and decide is this something that has a good story and that would get investors excited. Most these companies never actually do what they say they will do. All they do is sell the dream to gullible new traders. This is where you decide is their vision is something that could get enough gullible greedy people excited. Below we pictured the growing concern which is something that is also important to locate. The going concern. Gives investors a good idea of future concerns the company has and what their plans are to fix those concerns. In this example the company makes it clear they will be selling shares to raise money as well as seeking debt financing which is another word for what we like to call toxic debt. This usually means the only way this stock is going up is if someone providing the company this debt financing has one of their buddies “coincidentally” pump or promote the stock. Technically they can’t know of any promotions of it is a SEC violation but these promoters and toxic financiers network and privately (secretly) take care of each other.
  • Quickly looking at the company’s balance sheet

sec filing

In the example above you can see some important things highlighted in red.

A. This points out the spread sheet and finances has not been audited by a 3rd A lot of 10-Q won’t be audited. 10-K should definitely be audited. Never fully trust a financial statement that not audited by a third party! There are a lot of penny stock companies that will misrepresent numbers to sucker in investors. Always be cautious about unaudited financial reports.

B. This shows the total assets of the company

C. This is where you will find the Authorized shares and Outstanding shares for the company. This is far more accurate than just going by the information on OTCmarkets.com company profile. You still want to call up the Transfer Agent and verify these numbers to see if there have been any changes in share structure since the last filing.

Now the next thing is looking at the balance sheet, income statement, and cash flow statement.

SEC Balance Sheet

In the example, you can see some important things to locate on the balance sheet. You can see how much the company was making in sales. They sold $320,513 worth of goods but it cost them $288,476 to make those goods. That means that their gross profit margin is only $32,037. Now from the $32,037 you have to subtract the $47,991 the company spends to sell and market the product. So these geniuses in management found a product that they actually lose money on! It would be like me going to Walmart buying a bike for $100 then spending $50 on advertisement to sell that bike for $125. Each bike I sold I would be literally losing money on. That would be an awful business structure. It gets worse though. The company administration still paid themselves $878,075 dollars!  How can they do this? Where is the money coming from? The money comes from Debt Financing also known as toxic debt. The toxic debt also comes with interest. The company will give shares away for money. This money they use to pay themselves. The lenders then will sell these shares once they become unrestricted.

These toxic lenders are able to get away with this because there are enough naïve and greedy people out there that are addicted to gambling on penny stocks. Long term 99.99% of these stocks will fail but just like playing a slot machine there is someone that hits a jackpot and that greed of making millions keep us trading and playing these penny stocks.  These stocks always go down long term. Where you can make money is realizing that these stocks will have to bounce and go up in order to sucker people into buying them. That excitement and feeling of missing out on a 500%-20,000% bounce or pump is what draws more investors in.

Now let’s take a look what a reverse split looks like.  This is taken from a Pre 14(c)

reverse split exampleThe company is voting on a 250-1 reverse split. This means that if you own 250,000 shares of common stock at $1 You will now own 1,000 shares but the stock price will go up to $250 a share. The scary thing here is that the company didn’t apply the reverse split to the Authorized shares. They most likely plan on diluting the stock value. It is not uncommon to see a penny stock have a reverse split and drop 90% in 1-2 months. Reverse Splits cause huge sell offs. Generally as soon as you see a vote for a Reverse Split you want to sell and get out of the stock ASAP.A/S increase

This company is raising the Authorized Shares by 5 times what they were and on top of that they are creating a new class of preferred stock that converts into common shares.  This will surely lead to huge sell offs down the road.Now not all SEC Filings are bad obviously. Some 8K filings will have good news like a company uplisting or announcing business acquisitions. The key to success will be reading SEC filings and going back through past stocks and seeing how each SEC filling made the stock price react.

 

Penny Stocks Chart training

 

I want to make this section short and sweet. Too many people starting off in penny stocks try to over complicate everything and they end up going nowhere.
For penny stocks, I prefer to use Candlestick charts. I use stockcharts.com for a lot of charts. If I can’t find an OTC chart there then OTCMarkets.com is great for charts as well. Below is a basic chart with some of key indicators listed.

 

Basic Chart

 

Candlestick charts allow you to keep it simple with resistance and support.

 

In the example above I have highlighted some key areas of resistance and support.  Support offers support for a chart. It usually means it will take extra selling to make a stock go lower.   Resistance is the opposite it is a roof a penny stock will have to break through in order to go higher. When resistance breaks and a chart goes up the resistance usually becomes a new level of support. Likewise, When a stock price falls through levels of support it usually becomes a level of resistance. The purple lines are support levels.  The yellow line in minor resistance.  The Orange lines are major resistance.  If you follow the colored lines across you will see that they start off where prior resistance or support kicked in according to buying and selling action. Remember chart plays are all about recognizing a pattern.

 

Closer Look at Stock Candles

 

 

Now let’s take a look at two popular chart patterns. The Death Cross(Bearish) and The Golden Cross (Bullish).

 

golden cross and death cross

 

In this example, the chart starts off with a death cross and you see a major sell off after that. Then once it finds a bottom the stock price bounces and there is a Golden Cross. The Death Cross is when the short term moving average (50 day) falls below the long term moving average (200 day). The Golden Cross is when the short term moving average has an upward trend and cross the long term moving average. As you can see once the Golden Cross has confirmed the stock price goes up nicely. You can also see how the moving averages act as both support and resistance at times.

 

Here are a few more common chart patterns

 

The Head and Shoulders is a common chart pattern to see. When you recognize this pattern you can make some quick profits trading it right.

inverse head and shoulders

The inverse head and shoulders is the same pattern just flipped.

Another popular chart pattern is the Cup and Handle

 

cup and handle

 

Here are a few chart reversal patterns

 

double bottom reversal

falling wedge

Rising Wedge

Triple Top

Triple Bottom

bump and run

 

Here are a few continuation patterns

 

pennant

Symmetrical Triangle

Ascending Triangle

Descending Triangle

price channel

Measured Move

Measured Move Bearish

A lot of penny stocks, unfortunately, end up like the last pattern here the dead cat bounce.dead cat bounce

 

It is important to study different chart patterns. A lot of the algorithms are based on different chart formations.

 

 

Understanding Level 2 and the Market Makers in penny stocks

Market information incorporates different pricing data, (for example, latest trading price), and different volume data, (for example, the quantity of agreements that were most as of late exchanged). Market information is accessible in two distinct levels, with level 1 giving the essential exchanging data, and level 2 giving some extra exchanging data.

Level 1 Market Data

Level 1 market data gives the greater part of the exchanging data that most informal investors require, including the accompanying:

  • Bid Price – The most astounding value that a broker will pay to purchase an agreement (or share). This is the value that will be gotten for any market requests to offer an agreement.
  • Bid Size – The quantity of agreements (or shares) that are accessible at the offer cost. At the point when this number of agreements have been exchanged, the stock cost will move down to the following most astounding cost.
  • Ask Price – The least value that a merchant will acknowledge to offer an agreement (or share). This is the value that will be gotten for any market requests to purchase an agreement.
  • Ask Size – The quantity of agreements (or shares) that are accessible at the ask cost. At the point when this number of agreements have been exchanged, the ask cost will climb to the following least cost.
  • Last Price – The most as of late exchanged cost. This is otherwise called the end cost, in the event that it is the last cost exchanged the exchanging session (i.e. exchanging day).
  • Last Size – The quantity of agreements (or shares) that were most as of late exchanged.

Level 2 Market Data

Level 2 market information gives some extra exchanging data that is utilized with exchanging frameworks that take after the request stream, for example, scalping exchanging frameworks or propelled volume based exchanging frameworks. The additional exchanging data incorporates the accompanying :

  • Most elevated Bid Prices – The most astounding five prices that dealers will pay to purchase an agreement (or share).
  • Bid Sizes – The quantity of agreements (or shares) that are accessible at each of the bid price. At the point when each of these number of agreements have been exchanged, the present offer cost (included with level 1) will move down to the following level 2 offer cost.
  • Most minimal Ask Prices – The least five costs that merchants will acknowledge to offer an agreement (or share).
  • Ask Sizes – The quantity of agreements (or shares) that are accessible at each of the ask costs. At the point when this number of agreements have been exchanged, the current ask cost (included with level 1) will climb to the following level 2 ask cost.

Level 2 market information is otherwise called the order book. At the point when requests are set, they are set through a wide range of market producers and other market members. Level 2 will demonstrate to you a positioned rundown of the best bid and ask prices from each from these members, giving you nitty gritty knowledge into the value activity, including the market profundity. Knowing precisely who has an enthusiasm for a stock can be to a great degree valuable, particularly in the event that you are day exchanging.

This is the thing that a level 2 cite looks like picture above.

This let us know that NSDQ has a bid of 20,500 shares of stock at a price of $5.49 and the right side lets us know that NSDQ needs to sell 14,385 shares at a price of $5.50.

Now let’s take a look at the market participants.

The Players

There are three distinct sorts of players in the marketplace:

1. Market Makers (MM) – These are the players who give liquidity in the marketplace. This implies they are required to purchase when no one else is purchasing and offer when no one else is offering. They make the market. At the end of the day, the Market Maker purchases and offers the stock to financier firms.

2. Electronic Communication Networks (ECN) – It is an electronic framework that unites purchasers and merchants for the electronic execution of exchanges. It spreads data to invested individuals about the requests went into the system and permits these requests to be executed. Note that anybody can exchange through ECNs, even expansive institutional brokers.

3. Wholesalers (Order stream firms) – Many online agents offer their request stream to wholesalers; these request stream firms then execute arranges for the benefit of online merchants (more often than not retail brokers).

The Ax

The most vital market maker to search for is known as the ax. This is the market maker that controls the value activity in penny stocks. You can discover which maker producer this is by watching the level II activity for a couple days – the market creator who reliably commands the value activity is the ax. The ax isn’t continually exchanging the stock in some bearing. At some point he is keeping it in a tight range and now and again he is not there at all and another ax may venture forward. Take note of that there are times where there is no ax show. The fact of the matter is the ax is the one to watch nearer than all different gatherings or MMs. Numerous informal investors try to exchange with the ax since it normally brings about a higher likelihood of achievement. Take note of that the ax is not static. On any given day any gathering can be a ax, there might be one ax in the morning and another toward the evening. On the off chance that a major request goes onto the exchanging work area of a firm that doesn’t do enormous volume in a specific name, the ax will deal with it and charge the activity. A ax can undoubtedly utilize an ECN to shroud quite a bit of their activity. They can and will utilize fake outs. Watching out for Level 2 will uncover the hatchet.
Every market member is perceived by the four-letter ID that shows up on level II cites. Here are probably the most prevalent ones: NITE, ETRD, SCHB, TDCM and ARCA.

NITE – wholesaler
SCHB – wholesaler
TDCM – retailer
ETRD – retail ECN
ARCA – an ECN

NITE : This is the king MM of the OTCBB. He intimides dealers and different MMs utilize that further bolstering their good fortune realizing that he alarms them. That is the reason NITE is the shaker on most penny stocks runs; he is the most widely recognized hatchet. NITE could be on the ask constantly, he could lead a plunge startling merchants to SCHB and TDCM on the offer.

Other ECNs : ARCA, BRUT, BTRD, INCA, INTL, ISLD, REDI

Wholesalers : ETRD, HRZG, MASH, NITE, SHWB

Big Shorters : JIMK, POND, GNET or ARCA (anyone can use GNET, even other MMs because it’s an ECN).

TDCM – retailer MM.

Top Retail Dilutors : ACAP, AGIS, BAMM, BMIC, CHIG, CLYP, FANC, FRAN, JIMK, MAYF, NATL, PERT, SACM, UCAP, VERT, VFIN

Biggest OTCBB ECNs : GNET, TRAC & DATA

  • NASDAQ Market Maker List here
  • OTC Bulletin Board Market Maker List here
  • TSX Market Makers List here

Tricks and Deception in OTC stocks

In spite of the fact that watching the level 2 can enlighten you a great deal regarding what is going on, there is additionally a considerable measure of misdirection. Here are a couple of the most well-known traps played by Market Makers. It is difficult to tell when these strategies are relevant and when there is no genuine example:

    • Market makers can conceal their request sizes by submitting little requests and redesigning them at whatever point they get a fill. They do this keeping in mind the end goal to empty or get an expansive request without tipping off different merchants and frightening them off. All things considered, no one will endeavor to push through a 500,000 share resistance, yet in the event that a steady 10,000 share resistance is there, merchants may at present think it is a conquerable boundary.
    • Market makers additionally at times attempt to delude different merchants utilizing their request sizes and timing. These sorts of requests are called NITBB or NITSO (No Intention to Buy Bid or No Intention to Sell Offer). At the point when utilizing this system, the market member shows a gigantic size enormously surpassing all others seen on Level 2. Regularly it’s done keeping in mind the end goal to incite dealers to move the other way, as they are attempting to undermine this enormous size or to get in or out “front running” this size.
      Case: If some player needs to aggregate shares at $5.90 while the market is at $5.98 x 10, he can attempt and show an immense size at $6.02, spooking brokers into offering. Then our player puts an offer for little imparts at $5.90 to a save arrange for the measure of shares he needs, consequently retaining the offering. When he is done purchasing, he crosses out
      Big Shorters : JIMK, POND, GNET or ARCA (anyone can use GNET, even other MMs because it’s an ECN).
      TDCM – retailer MM.
      Top Dilutors : ACAP, AGIS, BAMM, BMIC, CHIG, CLYP, FANC, FRAN, JIMK, MAYF, NATL, PERT, SACM, UCAP, VERT, VFIN, BMAK, VNDM, MAXM
      Biggest OTCBB ECNs : GNET, TRAC & DATA

Level 2 quotes can tell you a lot about what is happening with penny stocks

    • You can tell what sort of purchasing is occurring – retail or institutional – by taking a gander at the kind of market members included. Huge foundations don’t utilize a similar market creators as retail dealers.
    • On the off chance that you take a gander at ECN arrange sizes for anomalies, you can advise when institutional players are attempting to keep the purchasing calm (which can mean a buyout or collection is occurring). We’ll investigate how you can identify comparable inconsistencies beneath.
    • By exchanging with the hatchet when the cost is inclining, you can enormously build your chances of an effective exchange. Keep in mind, the hatchet gives liquidity, yet its dealers are out there to make a benefit simply like any other person.
    • By searching for exchanges that happen in the middle of the offer and ask, you can inform when a solid pattern is regarding to arrive at an end. This is on the grounds that these exchanges are frequently set by vast brokers who assume a little misfortune keeping in mind the end goal to ensure that they escape the stock in time.A broker can attempt and utilize this circumstance for a scalp the other way, purchasing when the gathering is done and huge threatening size disappears
    • .A variety of this strategy is drive a stock to a specific value level by tailing it with an offer or an offer which remains marginally far from within market and pursues it as a value moves. On the off chance that a stock exchanges at $5.98 x 10 and our player needs it at, say $6.20 to begin dumping his position or for reasons unknown, he shows enormous size at $5.93 for example, and trails it higher as a stock moves higher however remains behind the best offer all the time. In both cases such a “fake” request is typically simple to spot given two signs. Firstly, such a request frequently remains marginally far from within market. Also, if a few exchanges are executed against this request, it typically vanishes quickly.
  • Utilizing enormous request estimate for fascination is a specifically inverse situation. At the point when a player has a major position to offer and he detects a few purchasers are searching for a size to purchase, he can attempt and show enormous size so as to draw in a purchaser by chance to construct his position in a solitary hit. This includes separation between this circumstance and the one we portrayed before, when appearance of a major size will spook brokers. An accomplished broker working huge requests normally has such aptitude (despite the fact that he won’t be guarantied from oversights of course).A merchant can utilize this circumstance as a sign of some institutional enthusiasm for a stock. Considering that huge institutional firms utilize an any longer time span, there is no assurance that a stock will move immediately, yet it merits watching out for indications of development beginning.
  • There are situations when a major player keen on a stock, forms his position as a stock moves. There is as of now enthusiasm for a stock beside his advantage, possibly as a consequence of some news occasion. Attempting to get however much shares as could reasonably be expected at more good costs, our player can apply mixes of techniques portrayed previously. The player will demonstrate huge sizes attempting to top the development and incite pullback which he will use to aggregate more shares. The player should be extremely cautious to abstain from being “steamrolled’ by hot purchasing. As he moves, his developments infrequently can be perused. This is perilous and quick amusement, for our player and in addition for a merchant that tries to use his moves. On the off chance that he is utilizing ECNs to cover his personality, this turns out to be much a greater amount of a craftsmanship. Utilized as a part of conjunction with outline perusing, these perceptions can give extra pieces of information to convenient passage and exit.
  • Market makers can likewise conceal their activities by exchanging through ECNs. Keep in mind, ECNs can be utilized by anybody, so it is regularly hard to tell whether huge ECN requests are retail or institutional.

Level 2 can give you one of a kind understanding into a stock’s value activity, however there are additionally a great deal of things that market producers can do to camouflage their actual expectations. Thusly, the normal merchant can’t depend on Level 2 alone. Or maybe, he or she ought to utilize it in conjunction with different types of examination while figuring out if to purchase or offer a stock.

 

Don’t be fooled into becoming a cult penny stock follower

The Kenny Rogers song “The Gambler” is extremely accurate when it comes to penny stocks and the OTC market.  If you are going to learn to play the game you better learn to play it right.

Almost all of the Otc market and penny stocks move on hype. Market awareness and promotion influence whether these stocks move up or down. If you look at the five year charts most penny stocks they have moved down big time. Penny Stocks are like playing slot machines some win big but if you stay at the machine too long you will lose all of your money.

We are all going to get rich!

Penny Stocks hold a lot of the same psychology as Ponzi Schemes as well as multi-level marketing. You will see a bunch of people spreading the word and pumping stocks that they own shares of trying to influence others to buy. The companies are almost always overpriced and most of the people pumping the stocks are simply regurgitating information that was pumped and passed on to them. This creates a rippling effect especially if the stock has forward momentum.

Shun the Unbeliever!

Penny Stock pumps fulfill some basic humans psychological needs. Ordinary people get to feel important and part of a group. Most people end up losing sight of why they first got involved in penny stocks, which was to make money. They trade that goal in, for a sense of community and team. People convince themselves that they actually believe in these junk companies. They tell their friends and family about them too. These beliefs are solidified when someone oppose them. Opposition is quickly labeled Bashing or Shorting. Almost all belief structures are strengthen when there is a perceived bad guy or enemy.  Religious people have the devil, Americans have Isis, and Penny Stock Believers have Shorters and Bashers.

There will be winners and losers in every stock

In every penny stock there will be winners and losers. There are two type of winners, Those who got lucky, and those that have learned from their losses and mistakes. If you are new to stocks and you have been making money consider yourself to be lucky. Too many times new investors will get lucky and develop a huge ego. They will think they developed some secret system for picking the correct penny stocks. Their luck is almost always short lived. They will get crushed in the market. My first year investing in the OTC market I turned 9k into 180k in 4 months. Then I received a huge blessing in disguise. I invested in a stock and let my ego get the best of me and lost 100k in three months.  At the time this sucked but it was a great learning lesson. It is important to have the mindset that every time you lose on a stock that you can learn from it. Failures make up the build blocks to success.

View Every Penny Stock as a potential scam

One of the best tips I can give beginners is to look at every penny stock as a scam. Put yourself in the shoes of the scammer. If you had tons of shares to sell how would you keep people excited? If you had an unlimited number of shares and the only way to make money was to keep people buying; What stories would you tell? What chart patterns would you intentionally setup? What news would you sell on? How would you get people excited? If you look at penny stocks this way you will start to see that they become a lot more predictable.

K.I.S.S.

In closing I want to leave you with some very simple tips.

  • You won’t go broke taking profits
  • Focus on making money and let others foolishly believe in these companies
  • Buy Low and Sell High
  • Cut losses early if a trade is not going your way
  • Be patient when choosing where to enter a stock and don’t chase
  • Avoid trading on emotion while understanding the emotions of others
  • Don’t get too greedy
  • Learn to read Level 2 and SEC filings or you will lose money