Everyone who invests on the stock market hears stories about penny stocks and the risky gains that they offer. Some traders won’t buy anything over a penny and not on the OTC Market where some will only trade shares that are big board listed, yet still trading under that $5 label penny stocks were given by the Securities Exchange Commission. The one common denominator between the two theories on trading them is how to find good penny stocks to trade and that’s what we’re going to shed some light.
First and foremost, remember this: Just like getting that washboard stomach isn’t easy, neither is hunting the markets for good penny stocks to trade. There a couple of tricks and tweaks, even a simple service which will do it for you (www.DDAmanda.com), but all in all, finding and trading them is a full time job – it just pays better than one when effectively done.
A List Of Penny Stocks To Trade
Any investor who is serious about managing their wealth growth understands that having a list of things to do each and every day is a never ending activity. Just like going to the gym and eating healthy 5-6 days a week is key to having that body for life, continuing the routine of creating and completing the to-do list daily will become muscle memory in a sense that will make it easier as time goes by. On that note, the first thing you’ve got to do is to find where to source great investment ideas and those can be accessed in a couple of places:
- Personal Scanner
- OTC Markets
- News Services
- Message Boards
Personal scanners are a great source for finding good penny stocks to trade. Since you’re on the hunt for them, most all investment platforms offer a “scanner” service which you can tweak to your liking and start to work through over time. My personal favorite is four-fold: 1) Volume over 150,000; 2) PPS between .0005 and .02; 3) Market Cap between 0.01M and 500M; and 4) increase in volume of 200% in comparison to the last 10 trading sessions.
OTC Markets’ website is a key element for a few reasons. Firstly, the trading data in terms of dollar volume and number of trades executed provide a great free service, albeit the data is delayed by 15 minutes. This is one website you will find yourself referring to regularly for two key elements: 1) end of the session trading data, and 2) a due diligence starting point which we’ll touch on later.
News Services area wonderful source for finding out whether or not the list of penny stocks you’ve created has any press release catalystic effects to the share price and also for finding those pre-market explosions that happen when news comes out. When you’re looking at a ticker to trade, you may see spikes on the chart which you can go back to the historical news to see if an announcement was the reason for the spike and adjust your choice making accordingly.
Message Boards, although they are completely and totally full of spam pumpers and middle aged men acting like middle school bullies, is a “last resort” source which can be used to find that hot ticker that’s going to the moon. Just like paper trading before real trading, you can check out the profiles of those posting messages which match your belief and see if they’ve had a history of being right or are having conversations with their multiple personalities on various boards in the past.
Researching Those Great Penny Stocks
Now that you’ve made it through step one and created a list of tickers you’re thinking about trading, now you’ve got to do your research and determine whether you found a dud or a stud. OTC Markets’ website is a great place to begin as you can check out the company profile to find out if they are current or not and what they claim to be the share structure of the ticker. Not always is that share data correct, so when you see that the company has 480 million shares issued and outstanding, but has a stated float of 45,008 as of 18 months ago, this is not biblical text so continue on and find out for yourself.
On the profile page, you’ll see if the company files their reports with the SEC or through the D-I-Y reporting service of OTC Markets. A company reporting to the SEC will allow for much greater access to deep digging into the possible pitfalls via their transparency rather than a simple MS Word created pdf of what the company says they made, have and owes. What they owe is 100 times more important than what they made when you’re dealing with penny stocks.
Assuming you found a ticker that reports with the SEC, your first click should be to the most recent 10-Q filing to see a) the total issued and outstanding shares as of the time of the filing, b) the total liabilities on the books at the end of the period, and c) if any convertible notes exist, who do they owe them to, when are they due, and who did they already convert debt with and for how much per share. Once you’ve had a glance over that, now you can start digging into their 8-K filings since their 10-K filing to see what’s been happening.
The 10-K filing is one which many make sure to review since towards the end of the very lengthy filing are the owners and directors holdings at the time of the filing. This allows for a better idea of what the public float could be.
Now that you’ve gotten a general idea about the nuts and bolts of the company’s current position, you can now start referring to the “buzz feed” to determine what the rest of the traders think about the ticker. Hitting Twitter and searching the ticker is a little less exhausting than going through message boards. Say the ticker is ABCD, you’d search $ABCD on Twitter, click “LIVE” when the results page shows up, and start scrolling down to sift through the spam tweets and the real tweets.
This is a basic, beginner’s guideline to finding good penny stocks to trade. When you’re seeing a ticker start running during a trading session, the same due diligence research pointers will help on determining the “reality” of the run. Two major factors about a ticker’s capability to run stem from who owns the convertible debt which can usually be determined from the company’s filings, and the Market Makers involved on the ticker – a very important factor which we’ll touch on next week.
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