Candlestick Trading Forum
keyword search

Candlestick Trading Forum        

Penny Stocks Investing

Penny stocks investing has to do with investing in stock in very small companies. According to the Securities and Exchange Commission the term penny stock generally refers to speculative stocks of very small companies selling for less than $5 a share. Penny stocks investing, usually, is on over the counter stocks such as the OTC Bulletin Board or "pink sheets". However, the term is also used for companies trading on a major US and foreign stock exchange. Penny stocks can be risky because they trade thinly and information about the stocks may be misleading or lacking.

The incentive for trading in penny stocks is that they are cheap. There are successful companies that were once penny stocks. If you have accurate information about the company, are knowledgeable about the market sectors involved, and have sufficient resources to withstand the complete loss of your investment, investing in penny stocks has the potential for a substantial return on investment.

There are penny stocks of companies that once were listed on the major stock exchanges and due to any number of factors were delisted. For example if a stock listed on the New York Stock Exchange (NYSE) falls below $40 million market value, it will be delisted. That company may trade as an OTC stock market penny stock. If the company is able to deal successfully with its problems and gain value it could relist on the NYSE or NASDAQ exchange. Investment in the company as a penny stock could be very lucrative.

However, in penny stocks investing one needs to be cautious. It is easy for a small group of individuals to manipulate the shares of a penny stock to create the impression of success where there is none. Fraud is always a possibility although the usual situation is that there is so little accurate information on the stock that investors foolishly bid up a stock price in a company with a lot of hype and no viable products.

Another term that may apply to penny stocks investing is micro cap stock. According to the SEC website micro cap stocks have very low capitalization. An example given on the site is that when the SEC has suspended trading in micro cap stocks, companies have had an average of $6 million in net tangible assets and half have had less than $1.25 million. Although a penny stock may appear to be an investment opportunity it may be a trap. Stock market basics may tell you that the company has no value and no prospects.

Low trading volume is a problem in penny stocks investing. Because of the low number of shareholders a few individuals may hold most of the companyfs stock. If they are not buying it may be very hard to sell your stock at a reasonable price. Likewise if the company publishes good news and you want to buy the stock, the few stockholders may only sell their shares at substantially higher prices.

Where penny stocks investing may well be profitable is when you have substantial insight into the workings of the company, its products, its customers, its lines of credit, and its management. In these cases it may be very lucrative. In general, investment in very low priced stocks has to do with knowledge of the company involved, risk tolerance, and the basics of stock market investing.


Market Direction: The start of a new year! What should be results the  first day reveals? Consider what was occurring with most research analysts over the past two weeks. A quasi vacation period, giving most analysts time to reflect on what occurred this past year and what their analytical evaluation projects for the coming year. Obviously, whatever those projections may have been, they were not going to be implemented until after the first of the year. The holiday times/year-end gains some influence of tax considerations. Most analysts are not going to establish new trades for the coming year until the new year begins.

So what does the first day/few days of a new year of trading reveal? It represents the analytical thought processes of a multitude of analysts. Their prognosis of what the markets/sectors should do this coming year will be illustrated in their actual purchasing or selling of stock as soon as the new year trading starts. Identifying strong signals in specific sectors usually produce very good profits during the first two to three weeks of trading. This is providing the market is holding a stable or bullish trend.

DOW

Nas

Many investors are still recovering from over the past two years of trading. These are usually investors that were listening to the analysts/experts. Their evaluations were projecting much higher markets while the candlestick charts were indicating a much different scenario. It should also be noted that many money managers went to cash in the early part of 2009 and had remained in cash, waiting for the next shoe to drop.

DOW 2 year

Candlestick investors were not commiserating about the drop over the past couple of years. They were making profits while participating in the downtrend. The introduction of short funds and leverage short funds made  being  short in the markets a very easy and profitable exercise. The number one adage for Japanese Rice traders is, "Let the market tell you what the market is doing." Take advantage of the information built into candlestick signals and analysis. If you understand the information incorporated into candlestick patterns, you do not have to rely on the so-called experts. You control your own financial destiny.

Member Chat session tonight at 8 p.m. ET. Check the Members' Area for password.

Good Investing,

The Candlestick Forum Team


 
 
Plus 30-Day Bonus Membership
 

 

Candlestick Trading Forum