When To Sell Penny Stocks - Posted by Greg Secker

Penny Stocks can be a very effective way to provide you with a secondary income. They can be used to create passive income because they do not require you to be constantly watching over them. The problem that most people have when it comes to stocks is - not knowing the right time to sell.

Penny Stocks can rise very quickly but they can also fall quickly too. The reason that most investors hold onto a stock is because the fail to separate their emotions from their actions.

All of your penny stocks buying and selling should, of course, be based on sound research both of the market and the companies’ recent history. How the company is doing in terms of profitability, whether they are just about to, or have just announced profits, losses or new patents, discoveries and products, can all affect your decision on whether, or not, to buy.

Knowing the right time to sell your penny stocks however can sometimes seem, as much an art as a science, although getting it wrong can be fatal. Many people seem to put all their research efforts into knowing what penny stocks to buy and when to buy them.

Investors seem to forget about researching to sell stocks. Instead, they let their emotions take control and sell at the wrong time. Investors selling at the “wrong time” fall into two categories. These categories are, The Runners and The Sitters.

The Runners like to take profit way too early. They see their Penny Stocks rise a little and sell because they don’t want to “risk too much”. I’ve seen it time and time again; these people set out to earn a 25% Return on Investment and end up taking profit at 1%. Someone who takes profit twice at 25% earns a lot more than someone who takes profit twice at 1%. Usually, as soon as they sell a penny stock, it will rise even further and they’ll be wondering why they sold so early.

The Sitters are the heavily emotionally involved in their penny stocks. They are gamblers at heart and just do not want to let go of a losing position because “it could bounce back any day now”. When they do let go of their Penny Stocks - there is virtually nothing left. The sitters like to sit on a losing position. They like buying but dislike selling.

Do you want to be a Runner or a Sitter? Well, I hope you are neither. You want to be a winner. A winner will separate their emotions from their investment thinking and will also research when buying and also when selling. They will buy and they are not afraid of selling.

There is great deal of profit to be made from trading in Penny Stocks. But you have to know not only what to buy but also how long to keep it and when the best time to sell. The answer, as with most things in the world of finance, is good information and research. But that doesn’t end when you buy. Find out why your penny stocks are rising and this will put you in a much better position to know when to sell.


Posted by Greg Secker

Investing in Penny Stocks - How To Make Huge Profit From Small Beginnings - Posted by Knowledge to Action

Investing in penny stocks is all about defining the rules and playing by them as all of the big time investors have before you.

Big time stock traders and investors have played by the rules and started out small, or even very small, swearing by a defined set of rules that basically state they will not continue any cycle of failing that loses them money, over and over.

Losing money instead of learning these rules is something that is unacceptable and potentially crippling to a new investor - even though your brain is trying to tell you that "Heck, it doesn't matter, they're only Penny Stocks after all!" (Damn you brain!!)

However, follow a few simple rules and you should be ahead of the penny stock investing game.

Number One and MOST important - Never, ever, under any circumstance borrow money to invest; this is possibly the biggest rule to stay out of investment trouble.

Yes, I know! You think you have the upper hand with some “inside” information that could help you build a huge portfolio in no time!

So have thousands of others before you - and they were all WRONG!

Please, don’t jump on a story with the only answer being borrowing money. If you start to lose money on the stock market, then the debt repayment will come directly out of your pocket. If this happens, trust me - you are now in big trouble.

Even if you begin to make money then you will be spending it to repay the loan instead of saving or reinvesting the funds. This money will stand by and haunt you as you continue to try to make a living off of the stocks you are trading.

Always save up to be able to invest as a rule of thumb, debt will be chased until you finally catch up by being farther behind than you were to begin with.

DON'T DO IT!

Investing in profitable companies is a big rule to keep in mind when investing in penny stocks. I know that reads and sounds awfully silly and a waste of breath but believe me - sometimes people simply invest in a company without determining if the company is profitable or not.

Either they like the name itself - or the product / service the company offers - or even they know a cousin of the manager of the typing pool and reckon it's keeping it in the family!

Don’t be the sucker that buys a stock and then tunes in to the television or logs on to the internet to see that its quarterly earnings are down and its revenue per share is dropping like a four-ton boulder of the Empire State building - very hard and very fast!).

Find information on how to find a profitable company, it is readily available on the internet, and then determine which company to invest in. Guides for how to evaluate companies, their accounts declarations and markets are readily available.

Also, do all of your homework, research and analysis before you buy a stock that is not garnering any type of attention.

One of the most important things for investors to look at is volume, anything less than one million shares per day is not worth touching. It is a pointless task to purchase a stock that is trading 9,000 shares a day because it will be nearly impossible to sell once you are ready to do so.

Stocks need attention to have liquidity, which basically means that for it to sell it must have value. Don’t be stuck with a rising stock that you will be unable to sell later. Don't just thinkof all the lovely profit you'll generate - think about the mechanics of actually being able to realise that profit. After all - so what if you've made $1.20 per share in three months - if you can't actually sell them!

Oh - and in case you forget! DON'T BORROW MONEY FOR INVESTING!!


Posted by Knowledge to Action

Stock Market - What's in a Trading Edge - Posted by Knowledge to Action

Unless you are able to develop a considerable trading edge over the other traders, you will end up losing your money, even if you are disciplined and organized. In this article, I discuss some elements that I use in my trading edge.

Fundamental Analysis

Fundamental analysis is the process of evaluating the financial condition of a company using financial reports, price/earning ratios, revenues, market share, sales and growth, etc. This type of analysis can be time consuming so instead of going through pages of financial reports, I simply look at IBD ratings.

I like to use Investor’s Business Daily (IBD found at investors.com) to get a quick overview of a stock. The IBD rating covers:

1 - Earnings Per Share (EPS) rating: tells me a stock’s average short term (recent quarters) and long term (last three years) earning growth rate. The number I see is how the company compares to all other companies. The scale runs from 1 to 99, 99 being the best.

2 - Relative Price Strength (RS) Rating: Measures a stock’s relative price change in the last 12 months in comparison to all other equities. The scale runs from 1 to 99, 99 being the best.

3 - Industry Relative Price Rating: Compares a stock’s industry price action in the last 6 months to the other 196 industries in IBD’s industry list. The scale is from A to E, A being the best.

4 - Sales + Profit Margins + ROE (Return on Equity) Rating: Crunches a firm’s sales growth rate during the last 3 quarters, before and after profit margins and return on equity into one letter. The scale is from A to E, A being the best.

5 - Accumulation/Distribution rating: Applies a formula of price and volume changes in the last 13 weeks to determine if it is being accumulated or distributed. A = heavy buying, C = Neutral, E = heavy selling.

If you like the idea of including fundamental analysis into your trading plan, consider trading only stocks that meet some minimum requirements - for example A or B, > 70, etc.

I like to use fundamental ratings for longer term trades such as the ones I plan on weekly charts. It is not really useful if you trade intraday.


Technical Analysis

Fundamental analysis is great to build a list of strong stocks, or as a way to filter out weak stocks, but that’s about it. It does not provide you with an objective method to enter and exit trades. All my trading decisions (entry, exit, and stops) are based on technical analysis.

Technical analysis is the study of prices. The price action draws patterns on charts and because human behavior can be repetitive, the price patterns can also be repetitive.

You can choose from a variety of chart types. The Japanese candlestick charts are by far the best and it is the only form you need. There are entire books dedicated to the study of candlestick patterns - if you are serious about studying candlestick charts, look at books written by Steve Nison and and Gregory L. Morris.

- Support and Resistance: The most important concept in technical analysis is Support and Resistance. It forms the foundation for every trading decision and could cover many pages but I will limit myself to simplified definitions and a couple examples:

Support level: A price level that a declining market or stock failed to penetrate
Example: the low of the previous day forms an area of support and is often used as a stop loss.

Resistance level: A price level that a rising market or stock failed to break through
Example: a prior high in an uptrend forms an area of resistance and can be used as a minimum objective to take some profits.

Some technical indicators may also provide some support and resistance, for example moving averages, in part maybe because so many traders expect it.

- Oscillators

An oscillator is a technical indicator that tells you at a glance whether a market or a stock currently trades in an "overbought" or "oversold" condition. Some traders use oscillators to forecast a change of direction. Some examples include the RSI, Stochastic Oscillator, and MACD.

There are hundreds of oscillators and technical indicators. I personally look at them to filter out some stocks if I have too many good ones to choose from. I never use them as a signal to open or close a trade.

- Public Sentiment

I look for support and resistance on the VIX (Volatility Index) daily chart to anticipate reversals.

I look at the Put/Call Ratio (5 MA and 10 MA) on the daily chart to see if traders are too bearish (MAs > 0.8) or too bullish (MAs < 0.5). (MA = Moving Average) - Market internals to see if the market is overbought or oversold I look at the TRIN (5 MA and 10 MA) on the daily chart - overbought (MAs < 0.8) or oversold (MAs > 1.2).

I look at the McClellan Oscillator – the market is overbought if it rises above +70 and oversold if drops below -70. A buy signal is generated if it falls into the oversold area (-70 to -100) and then turns up - a sell signal is generated if it rises into the overbought area (+70 to +100) and then turns down. If it goes beyond the -100/+100 levels then it may be a sign of continuation of the current trend.

- Market and Industries

I like to buy stocks from industries in a strong uptrend and short stocks from industries in a downtrend. I also consider the direction of the industry for the day (positive or negative).


Putting it all together

This article is not about teaching you how to develop an edge but hopefully it shows you that there are many different tools that can be used to improve your odds. It takes time to find a combination that fits your personality. It takes time to find what works for you.

Posted by Knowledge to Action

Lack of a Trading Strategy - Posted by Knowledge to Action

If you know the pitfalls of trad¬ing, you can easily avoid them. Small mistakes are inevitable, such as entering the wrong stock symbol or incorrectly setting a buy level. But these are forgivable, and, with luck, even profitable. What you have to avoid, however, are the mistakes due to bad judgment rather than simple errors. These are the “deadly” mistakes which ruin entire trading careers instead of just one or two trades. To avoid these pitfalls, you have to watch yourself closely and stay diligent.

Think of trading mistakes like driving a car on icy roads: if you know that driving on ice is dangerous, you can avoid traveling in a sleet storm. But if you don’t know about the dangers of ice, you might drive as if there were no threat, only realizing your mistake once you’re already off the road.

Although trading involves risk, never treat it like gambling. You must have a solid trading strategy, one which you plan, test, and revise repeatedly. You need to stick to this strategy, and never act on spur-of-the-moment decisions. All you do when you act on a gut feeling is jeopardize any and all of the thoughtful planning you’ve done by giving yourself completely over to chance. Remember that you can never control where a single trade will end up, but you do have control over a long-term plan.

And don’t evaluate your performance on the basis of individual trades. A gambler might think that a small loss is a failure while one huge risky gain means success. Traders should never think this way. Instead, judge yourself by the consistency and profitability of your overall strategy. This is the only way to stay in control of your trading success.

To do this, of course, you have to build a solid strategy. This means developing a set of pre-defined rules that you follow consistently. You should set goals for each week, or possibly each month (but never for a single day, as there are too many things you won’t be able to control over such a short period of time). Next, decide on realistic profits and losses for each trade. Then, according to these markers you’ve set for yourself, carry out your plan without exceptions.

If your set profit for a trade is, say, $300, sell when you reach that milestone, even if you have a feeling the stock will rise. Otherwise, you corrupt your plan with too much risk, and you’ll never know if your overall strategy was successful or not. You may have gotten lucky with one trade, but you haven’t determined any kind of consistency.

Keeping to a strategy will allow you to revise what you’re doing, learning which goals and limits will work and which won’t. Straying from your strategy teaches you nothing useful that you can apply over the course of your trading career. So, while you may gain a few hundred, or even thousands, of dollars on a single trade, who knows how much knowledge you sacrificed, knowledge could have gained you tens or even hundreds of thousands of dollars in the years to come.


Posted by Knowledge to Action

An Industry Blueprint To Stocks And Shares - Posted by Knowledge to Action

In this day and age, a lot of things have changed from how they used to be, which can be new and exciting for most.

Because of the large size of the stock market, beginner investors appear to feel overwhelmed as to where to even activate investing their money. To most people, the stock market presents a messy web of options but does not reveal the highway map of clarity to guide their way along way in their investment adventure. The key to investing in the stock market is to become as educated as it is possible so that you know exactly what is taking place at all times. This helps people to make plausible and sound decisions about their money, thus, dropping the stress involved with investing.

The usual person, when beginning to entertain the idea of investing in the stock market, falls into one of two categories. Class one is the gambler who feels that investing is definitely a form of betting and no question what they do, they are certain that they will drop money slightly than make money. It seems that this opinion of investing in stocks is either formed from friends and family that have been baffled by the stock market or private experience and lost money. If someone has personally made losses in the stock market, it is pretty evident that they were not educated enough at the time of their investment in the stock market. Therefore, they must become educated as to what exactly the stock market is as well as how its system works in order to become a successful investor. Class two, on the other hand, represents the “go-getter” investor, which is an individual who knows that they should invest into the stock market for the safety of their monetary future, but they have absolutely no idea where to begin. The “go-getters” lean towards avoiding their monetary decisions and leave it up to professionals; therefore, they are powerless to justify why they own a certain stock. A usual “go-getter” operates in blind faith, as one stock goes up in value, they more than likely will hold it. The “go-getter” is in poorer shape than the gambler in that they will invest like everyone else and then wonder why they receive an unsatisfactory or devastating outcome. This just proves that the typical person should become thoroughly educated about the stock market as well as stocks before investment takes place.

Essential to every economy is business...businesses that started out as small operations that have grown to become money making giants, raising capital by promoting stock in them to people who want to invest to make their futures financially secure. As small businesses start to grow, one of the supreme obstacles is generating enough money in order to develop into a superior operation. Businesses either scrounge the money in the form of a offer from a bank or venture capitalist, or someone that will invest money into a business in which they feel they will receive a high rate of return, or a reap from their investment into a business, in order to create the currency to expand. The most common choice for a business to gain money for the view of expansion is to take out a loan; however, there is no agreement that a bank will offer money to any given business.

What we have explored up to now is the most important information you need to know. Now, let’s dig a little deeper.

In this case, business owners roam to the stock market for help in the form of issuing stocks. Firm owners relinquish a tiny fraction of control over their business and in reciprocation; the stock market provides that business money that does not have to be salaried back, in order to guarantee expansion. As an added bonus, the business is permitted to “go public,” a saying that means a brand is selling stocks for itself for the first time, so that business owners no longer are required to borrow money from banks because they can merely use their own stocks for getting monies to use for expansion. Thus, as the business grows and sells their stocks to people, the better chance a sponsor has on gaining a return on their investment as opposed to a loss.

As an investor, it is to your advantage to efficiently study each and every business in which you propose to hold stocks. The more facts you know about any certain business, the easier it is to make a plausible decision as to whether you should hold stocks or want a different business in which to work with.

Try searching for a particular keyword from the title of this article on your search engine and you are sure to find a wealth of knowledge.

Posted by Knowledge to Action

5 Tips for Investing in Penny Stocks by Knowledge to Action

Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.

1. Penny Stocks are a penny for a reason.
While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker's money for an IPO. This doesn't make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.

2. Trading Volumes
Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn't trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding "dead money", where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.

3. Does the company know how to make a profit?
While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?

If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return.

4. Have an entry and exit plan - and stick to it.
Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you're out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.

If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

5. How did you find out about the stock?
Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.

Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash.

How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You'll start to notice quickly if you have subscribed to a good newsletter or not.

One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you'll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?

Posted Knowledge to Action

3 Steps To Profitable Stock Picking

Stock picking is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. This article will outline these basic steps for picking high performance stocks.

Step 1. Decide on the time frame and the general strategy of the investment. This step is very important because it will dictate the type of stocks you buy.

Suppose you decide to be a long term investor, you would want to find stocks that have sustainable competitive advantages along with stable growth. The key for finding these stocks is by looking at the historical performance of each stock over the past decades and do a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the company.

If you decide to be a short term investor, you would like to adhere to one of the following strategies:

a. Momentum Trading. This strategy is to look for stocks that increase in both price and volume over the recent past. Most technical analyses support this trading strategy. My advice on this strategy is to look for stocks that have demonstrated stable and smooth rises in their prices. The idea is that when the stocks are not volatile, you can simply ride the up-trend until the trend breaks.

b. Contrarian Strategy. This strategy is to look for over-reactions in the stock market. Researches show that stock market is not always efficient, which means prices do not always accurately represent the values of the stocks. When a company announces a bad news, people panic and price often drops below the stock's fair value. To decide whether a stock over-reacted to a news, you should look at the possibility of recovery from the impact of the bad news. For example, if the stock drops 20% after the company loses a legal case that has no permanent damage to the business's brand and product, you can be confident that the market over-reacted. My advice on this strategy is to find a list of stocks that have recent drops in prices, analyze the potential for a reversal (through candlestick analysis). If the stocks demonstrate candlestick reversal patterns, I will go through the recent news to analyze the causes of the recent price drops to determine the existence of over-sold opportunities.

Step 2. Conduct researches that give you a selection of stocks that is consistent to your investment time frame and strategy. There are numerous stock screeners on the web that can help you find stocks according to your needs.

Step 3. Once you have a list of stocks to buy, you would need to diversify them in a way that gives the greatest reward/risk ratio. One way to do this is conduct a Markowitz analysis for your portfolio. The analysis will give you the proportions of money you should allocate to each stock. This step is crucial because diversification is one of the free-lunches in the investment world.

These three steps should get you started in your quest to consistently make money in the stock market. They will deepen your knowledge about the financial markets, and would provide a sense of confidence that helps you to make better trading decisions.

Posted by Knowledge to Action