Hello and Welcome to our extreme guide on “How To Invest In Penny Stocks For Beginners”. Here on this page, I will go ahead and break it all down for you in a language that you can both understand and comprehend. The tactics and strategies that we will go ahead and cover have been proven to work and can definitely steer you in the right direction regarding penny stock trading. It doesn’t matter if you are a novice or a seasoned Penny Stock Trader. This “how to invest in penny stocks for beginners” extreme guide will definitely provide some insight and information that all can benefit from.
Penny Stock Secrets of the PROs – Extreme Guide
Alright. Now that we have gotten the introductions out of the way, let’s go ahead and begin by answering some of the most common questions that novice penny stock traders tend to ask. How To Invest In Penny Stocks For Beginners.
1. Beginner Penny Stock Trading Questions – Penny Stocks 101
To get things kicked off, let’s go ahead and answer some of the most common questions that a novice Penny Stock trader might ask. These questions will range from things like; what in the world are penny stocks, how do you make money with them, are they safe and more. Take a look below and please send us a message via our contact form if you have any additional questions / concerns regarding penny stock trading.
Let’s dive right into this how to invest in penny stocks for beginners guide by answering a simple question, what are penny stocks. The best way to answer this is to go ahead and just jump right in. So, what exactly are Penny Stocks? Well, Penny Stocks are low-priced, micro-cap stocks. Contrary to popular opinion, penny stocks seldom cost just a penny. In fact, you can find penny stocks costing between $.0001 and $5 per share. The other thing to consider is that there are also stocks that trade on bigger exchanges (like, NYSE and NASDAQ) costing under $5. For most investors and traders out there, the stocks that trade on the NYSE or the NASDAQ are not considered to be penny stocks. When it comes to Penny Stocks, most traders and investors out there look at the OTC markets as a an untamed animal (a wild horse). This wild world of trading and investing isn’t a part of the normal CNN, CNBC type media channels, and is completely detached from public view that comes with the big exchanges like NASDAQ and NYSE. Even traders that have made quite a successful living for themselves trading micro caps, and penny stock tickers that have had amazing gains / loses, are typically not discussed or heard of on the normal TV News channels.
TIP* Here is one important thing to remember about Penny Stocks, just because you don’t hear about them daily on the big news channels, does not mean that penny stocks are not worth trading and investing into. In fact, in my opinion; once you learn the different games that are played on the OTC markets by the various scammers, pumpers, bashers, marketers etc.. you can dominate this market. It is a large market, yet small enough; that you can definitely figure out some of the patterns and profit from it all.
TIPS* like the one above will be provided throughout this “How To Invest In Penny Stocks For Beginners” extreme guide.
The answer is yes, most brokers will allow for you to trade penny stocks. Similar to any other stock that you would purchase, you can most definitely buy shares of the micro-cap / penny stock that you like through a regular stock broker. Even if the penny stock doesn’t trade on big exchanges like NASDAQ or NYSE, you can still purchase it through the big brokers like Charles Schwab, TD Scottrade, E-Trade etc..
One thing to consider, is that some of the stocks that are currently trading on the big boards like NASDAQ & NYSE, trade under $5/share and are not considered penny stocks. Even though they are in the same price range as a penny stock, these stocks do not trade over the counter like the pennies do. However, with all of that said; you should definitely consider taking a look at some of these cheap stocks on the NASDAQ and NYSE exchanges. They provide low-cost shares, good value and at times less risk when compared to the traditional penny stocks. The NASDAQ and NYSE have rigorous conditions, requirements and rules around them. Even, if these stocks down have huge up-side potential when compared to the penny stocks, they do have a tendency to be from a bit more reliable and trustworthy companies.
On the other side of the big boards and big exchanges, is the Penny Stock world. The Penny Stocks trade on the “OTCBB” and in Pink-Sheet form. The OTCBB and the Pink Sheets don’t enforce strict rules and regulations like the NASDAQ and NYSE exchanges do. Due to this, the Penny Stocks that trade on the OTCBB and via Pink Sheets do not have much regulation around them. Due to this reason, some investors would say that Penny Stocks are very risky and dangerous. This how to invest in penny stocks for beginners guide has been crafted to go together with the Find Online Jobs From Home Without Investment guide.
Just like any other stocks that you would buy out there, you are never guaranteed that you will actually make money from it. As the saying goes, “Do not invest any funds into a stock, where you are not prepared to lose 100% of your investment”. So, to answer the question; yes Penny Stocks are extremely risky, but they are only risky to the untrained trader. Alright, now that we got that out of the way, let’s really grind down to the details of why Penny Stocks might be risky, or why they might not. I will go ahead and break this down into two parts and end with a conclusion. The extreme guide on how to invest in penny stocks for beginners continues..
Why exactly are Penny Stocks risky? Well, there are no rules and no regulations around them to start. Without rules and regulations, Penny Stock company CEO’s can just put out PR’s (Press Releases) with fluff information. Something along the lines of “From the CEO: the company is currently working on bla bla bla and bla products, we look forward to hopefully be releasing the bla bla product in the near future. We hope to have the product selling in bla bla bla stores by the end of the year and expect the bla bla product to make us revenues in the amount of bla bla bla”. You see how easy that was? The CEO never stated that the product would be released on a specific date, they never said the product would even be completed, or even that the product would indeed be sold in any stores. It was all based on; I look forward to, working on, I hope to, I expect that, etc.. This is what we in the bizz call fluff news. So, if you can’t trust the CEO of the company, you can then at least talk to your fellow traders on the message boards and get the real scoop from them, right? WRONG, most of the so-called friendly traders out there pre-load a stock and are trying to sell you their shares and make money on you. Do not trust any fellow traders, unless you know them in person and know them to be trustworthy. Some other reasons why penny stocks are risky; pump and dump, pumping, bashing, pre-loading, stock splits, dilution, fake PR’s, fake news marketing via email, crook CEO’s and companies, de-listing and the list goes on and on.
Why Penny Stocks Are Not So Risky? Still with me? I know that past paragraph might have scared away most of the readers. You are probably thinking to yourself, what can this guy possibly say to make me believe that Penny Stocks are not so risky after all of this pump and dump, dilution, fake PR talk? Well, I am just being up-front with you. Penny Stocks are not for the meek. If you truly are ready to learn more about micro-caps, continue on reading this “how to invest in penny stocks for beginners” extreme guide. Penny Stocks are really not so risky if you know what you are doing. If you spend the time reading this guide from beginning to end, you will be armed with both knowledge and experience (yes, even experience — after doing some paper trading – more on this later – via the Golden Penny Stock Tips) to help you beat all of the risky stuff that you will be facing. Once you figure out how to spot the pumpers, the bashers, the fake PR’s, how to read through the fluff news, how to screen stocks that have a good share structure (more on this later – via the Golden Penny Stock Tips) and more; you will be ready to go head first and own on this OTCBB & Pink Sheet markets.
Conclusion on Penny Stock Risk! As you can see, Penny Stocks can definitely seem very risky to the novice penny stock trader, but once you actually start figuring out the know-how about the Penny Stock world, you will see that the micro-cap world is really not all that scary. With the right training, the right mind-set and the right ideas; you too can master this like I did.
Are All Penny Stocks a Scam? – How To Invest In Penny Stocks For Beginners
Well, this answer really depends on the details behind the question. Let me explain. Are all Penny Stock companies a scam, is the company a fake company, are all of the PR’s, news and filings fake and a scam in a particular Penny Stock company, is the run that the company’s stock is experiencing currently fake? As you can see things are not always so black and white. Alright, so the answer to all of the scam* questions is most definitely a NO. In the Penny Stock world, there are definitely scams, but there are also some legit companies with actual products, revenue, some of them have property (example.. mining companies), mineral rights, employees etc.. Not all Penny Stock companies and scams and fakes, but quite a bit of them are.
There is a good chance that if a company regularly updates their financials on OTCmarkets.com, they regularly abide by the rules by completing filings, they keep their share structure current and accurate, update their shareholders frequently and do all the right things; that this company might be a legit company with a real product, real employees and real revenues. But on the other hand, some of this filing information can also be faked and once again fluff-information can be provided to steer good investors into bad ventures.
Generally speaking, if the company does a good job on filings, updates, news, stays current etc.. the company might be good. If on the other hand, the company doesn’t submit regular filings, the certifications and licensing for day-to-day operations of the business are not renewed, constant dilution of shares is happening, constantly paying off debt by selling shares, doing reverse stock splits etc.. then chances are that this company might not be good and you should steer clear of them. Quite a bit more information like this will be covered on the rest of this “how to invest in penny stocks for beginners” extreme guide.
If you have read some of the other articles and information out there on Penny Stocks, then I’m sure that you have seen things like.. “oh you need at least $1,000 to $5,000 to get started trading penny stocks”, or “You can get started trading penny stocks with $300”. Well, I’m here to tell you that you can get started with $100 if you wanted to. Heck, even $50. How is this possible do you ask? Take a walk with me here and let me explain. Currently, most brokers charge anywhere between $2 to $10 per trade to buy or sell a stock.
TIP* Example: Let’s use Charles Schwab for our example. Charles Schwab currently charges $4.95 per trade. Alright, so let’s say you have $100 to your name and you want to buy a penny stock. With a $100 of trading cash, I would suggest that you buy a stock that costs $.0001/per share (this is a sub penny stock). If you went through Charles Schwab and wanted to spend your $100 on this stock, you could purchase 950,500 shares. What this means is that after your trade commission of $4.95, you are left with $95.05 to spend on the shares. And $95.05 = 950,500 shares at .0001 per share. Now, let’s say that by some miracle, your stock ends up running from $.0001/per share to $.0005/per share and you sell at $.0005, you just sold your 950,500 shares for $475.25 (minus $4.95 in new commission trade fee). So after the two commission fees (one to buy the stock, one to sell), you ended up with $470.30. Not bad right? Alright, that was the extent of my math skills for you.
As you can see, you don’t need a ton of capital to start trading Penny Stocks. But then again, the more cash that you have to trade, the quicker you could make bigger gains (or bigger loses). Please continue reading this extreme guide on “how to invest in penny stocks for beginners“.
There are a few different ways to research Penny Stocks. You can see about calling the actual company (quite often, the CEO himself will be on the phone, haha yeah; pretty funny huh). You can email the company with questions and concerns. You can talk to other fellow traders on message boards. You can go ahead and look at the message boards for information that has been provided in terms of pinned posts and company profile. You can visit the OTCMarkets.com website and do a search for the company stock ticker that you are looking for, there you can look at the company’s profile. Check out the company filings and press releases (also on OTCMarkets.com).
Are Penny Stocks For Everyone? – How To Invest In Penny Stocks For Beginners
Here is the honest answer, Penny Stocks are most definitely not for everyone. If you are one of those people that just wants to play it safe and doesn’t want to take any risk whatsoever, then penny stocks are not for you. Most traders out there are fine taking 5% gains, 10% gains, 20 % gains over a span of a year or more. This is not who I am. I personally like to see gains of 1,500% or more in a matter of a day or two. Imagine having a $200 investment turn into $3,000 in a matter of a week or less from just a single Penny Stock run? Yeah, these are the possibilities with the Penny Stocks. Then again, I have to say it; you can also lose that $200 investment just as easily if not careful. Most people out there are not willing to take the higher risk to reap the higher rewards, so they stick to Mutual Funds, 401K’s and the Blue Chips. If you are not one of those people and are willing to risk a little for a chance to gain massively, then Pennies are for you. If on the other hand, you want the safe road, then go ahead and pass on Penny Stock trading.
Absolutely! If you are really serious about penny stock trading and would like to get your feet wet with actual trading, then I would suggest a practice called “paper trading”. This type of stock trading is done by the investing fake or imaginary money and by creating positions in stocks that behave very similarly to the actual stock markets. Due to the way that technology and computers have advanced over the last couple of decades, paper trading allows for you to practice making money time and time again. By utilizing this way of trading, you can hone in your stock trading strategy and craft before actually committing any real funds into the markets. Call it, monopoly money if you would. You basically use fake money to purchase stock from real companies. The stock charts, L2 and L3 quotes (more on this later – via the Golden Penny Stock Tips) behave in the same way with paper trading as they do on the real markets. The gains that you see with your paper trading money are real. And guess what, if you are seeing wins with your paper trading, then there is a good chance that you can go ahead and begin slowly dipping your hands into the real world of trading. If however, you are seeing loses and your picks not doing anything, then it might be time to refocus some of your energy into fine tuning your strategy with paper trading so that you can become a winner. If you are serious about trading stocks and do not have much real world stock trading experience, then I suggest trying out Paper Trading (P.S. I did it too when I first started trading). Like the info on this how to invest in penny stocks for beginners guide thus far? It gets really good as you continue reading.
First of all, lets make sure that we are all on the same page when it comes to the question of “what are technical signals in stocks?”. Technical signals and technical indicators in the stock market basically allow for your to judge a stock by certain technical criteria. Technical signals and technical indicators look at the actual stock chart (more on this later on – via the Golden Penny Stock Tips), they look at things like the a stock’s share structure (Outstanding Shares, Authorized Shares, Restricted Shares, Float, etc.. more on this later as well), a stock’s historical data (forward as well as reverse stock splits, dilution, more on this later too – via the Golden Penny Stock Tips), a company’s filings and more. There are some traders out there that literally only trade stocks based on technical trends, technical signals and technical indicators (its a whole science).
When it comes to Penny Stocks on the other hand, I believe that it is very important to pay attention to things like a stock’s; share structure, a stock’s chart, the support level of a stock, the resistance on a stock’s chart, the float, history of the stock and more. All of these things will be explained in more detail later on (via the Golden Penny Stock Tips), so keep on reading this extreme guide on “how to invest in penny stocks for beginners“.
Feeling lucky? Received a cool tip through your email, social media or a phone call on a stock that you should absolutely buy? Thing again. There is a reason why you are getting this email. When it comes to stock trading alerts and promotions, they are happening for a reason. Somebody is trying to bring awareness to a stock. And usually, it is not for good reasons. In fact, most of the time; you will be receiving some type of an alert telling you to buy a stock because somebody has pre-loaded the penny stock. It is either a private party, or a group of people that pre-loaded the penny stock, or it is the actual company that is trying to sell you shares. And guess what, most of the time, they are not selling you shares because they want you to make money with them or because it is a good investment. No, chances are that they are trying to sell you these shares that they have provided a third party in form of a payment for a service that they might have provided to the penny stock company. And now, in order for this third party to receive payment for their service or work performed, they will need to sell the shares that they received as payment. And wait for it… it is to you that they are trying to sell these shares. These types of 3rd party payment shares are called notes. I will elaborate on this all more later in much more detail (via the Golden Penny Stock Tips).
With all of this said though, is there a way to make money of a penny stock that is currently being promoted? Well yes, there actually is. If you can catch the run early on when the alert is new and fresh (after checking some technical signals and technical indicators for this penny stock), then there is a chance that you might be able to get some gains out of it. But don’t count on this being an easy thing to figure out. You need to be a seasoned trader and a well versed in stock knowledge individual to pull this one off. I will elaborate on this all a bit later (via the Golden Penny Stock Tips) as well, so continue on reading. The extreme guide on how to invest in penny stocks for beginners.
2. Penny Stock Power Trading TIPS – This is What The PRO’s Use!
Now that we have gotten some of the beginner questions and concerns out of the way, let’s go ahead and highlight some MEGA TIPS for penny stock trading. These power trading tips are something that is learned and knowledge that is gained over time in the Biz. I will go ahead and share some of this with you right now. Here we go. How to invest in penny stocks for beginners continued..
If you come across a Penny Stock that is already running (you can easily tell if a penny stock is running by taking a look at it’s chart), I would recommend staying away from it. Even though this stock might look good for the next (as they say), leg up; there is a good chance that the momentum of this penny stock can turn around and if you would have bought in all of the excitement, that you could be turned into a bag holder (this is somebody that gets stuck in a penny stock because they bought on the end of the stock’s run). To be on the safe side, always buy low and never buy a penny stock that is already running.
What do I mean by Bloated Penny Stocks you may ask? This basically mean’s that the share structure of a penny stock is over saturated with the amount of shares that the company is allowed to sell and introduce into the markets. I am of course talking about the Authorized Share (AS) Structure of a stock (I will explain more on this later – via the Golden Penny Stock Tips).
I will give you an example. Let’s say that there is a penny stock out there (lets call it Penny Stock Alpha) that is currently trading for $.0020 per share, and this stock has an AS of 500 Million shares. Now, on the other end is a penny stock #2 (let’s call it Penny Stock Beta) that is also trading for $.0020 per share, but has an AS of 5 Billion. You might have an idea of where I am going with this already. If you might have guessed it, the Beta Penny Stock is the bloated one out of the two. It is much easier for a penny stock to move quickly and much easier for the float to get locked down (more on this later – via the Golden Penny Stock Tips) on a 500 Million AS stock, than it would be on a 5 Billion AS stock.
Think of it this way, if the Alpha stock gets a ton of attention and a huge amount of people buying up all of the shares after some amazing news (example news: $150 Million dollars in funding has been received for a new product), but nobody is selling any shares (because the expectation is that the stock will keep gaining momentum), the stock just keeps going up and up and up. Now imagine the same news comes out for the Beta penny stock. It would take a lot more buyers and a lot more money to buy up all of the shares for this particular penny stock as there are just too many shares out there to trade.
All of this might sound somewhat confusing to you right now, but it all makes sense if you had access to and an understanding of L1 and L2 Quotes(more on this later – via the Golden Penny Stock Tips).
As I had already mentioned on the beginning of this extreme guide on “how to invest in penny stocks for beginners”, I would recommend that you stay away from Penny Stock email alerts as well as any Social Media penny stock alerts. Most of these alerts and marketing information is just being provided to you by somebody that has pre-loaded a Penny Stock and that is just trying to sell their shares to you (essentially making you a bag holder).
Again, there are ways of making money with these alerts as well, but you really have to know what you are doing (more on this later – via the Golden Penny Stock Tips).
This TIP kind of goes along the same lines as the “never trust a penny stock marketing alert” TIP. Basically, if another Penny Stock trader is trying to get you to buy a penny stock, there is a very good chance that they stand to gain something from you purchasing this penny stock. They are either trying to sell you their shares of that penny stock, or they are perhaps a paid promoter that has been paid by the company or a 3rd party to bring awareness to a particular penny stock. The only way that you can really trade penny stocks successfully by working with another individual, is to join a group of penny stock traders. These groups of people all go in and buy the same penny stock and they wait for it to run (more on this later – via the Golden Penny Stock Tips).
There is a right way and a wrong way to do it. Don’t be the “wrong way person”. Please continue reading this extreme guide on how to invest in penny stocks for beginners for more great tips and ideas.
This is one of the worst mistakes that a penny stock trader can make. They get attached and fall in love with a penny stock. There is a saying in the penny stock world that really defines this well. “Don’t drink the Kool-Aid”. Companies will put out PR after PR, filing after filing, they will hire marketing experts and paid promoters to feed you fluff news and information. Although not all Penny Stock companies are made equal, most of them are crooks and scammers. Just be careful in what you hear, and definitely do not believe every little thing that is being said on the message boards, social media, marketing materials etc..
This is a super important tip and it is an absolute must to read through on this how to invest in penny stocks for beginners extreme guide. If you only have $100 to invest in penny stocks, I would suggest buying two different penny stocks with this (or maybe even 3, depending on how lucky you feel). If you have a $1,000 to throw at the Penny Stock world, I would suggested dropping a $100 per stock. So $1,000 = 10 different stocks. Even if only two of these stocks run, you could make your money back and even some gains. All it takes is one runner to get you going in the right direction. I have seen Penny Stocks that have run in the thousands of percent (%) in gains. I have seen some penny stocks that ran 4000 percent over time (this my friend is called a 40 bagger – multiply your investment by 40 times). Yeah, this is for real.
Imagine, your little $100 dollar investment, turning into $4,000 in a matter of months. Now think about this, out of the 10 stocks that you bought with your $1,000 (this is not taking into consideration your commission fees etc.), one of the 10 multiplied your initial investment (for that one stock, $100) 40 times. Well guess what, you still have 9 more stocks that could run. And remember this, very important… YOU DONT LOSE UNTIL YOU SELL or a stock gets de-listed from an exchange or some other not-so-common thing happens with the company.
So, even if some of your stocks dip in value and you are in the red, as long as you don’t sell (remember, don’t be emotional), you are still not really losing money. In fact, you could actually just sit on your stock and wait to see if the price of it will go back up to where you bought it from. Or it could go even higher than where you bought it, and you could actually make money off of it down the road.
Decide on an Exit Strategy
You should always have a plan when you buy a stock. What I mean by this is that you should have an idea of how much profits you are trying to make with a particular stock. For example, some traders will buy a stock, wait for it to go up 100% and then sell half of it. The 50% in shares that they still own, they will let this ride as long as they want to as they are free shares. Remember, their sold enough shares to cover their initial investment, and now have free shares riding to gain profits. This is definitely a smart play. Other traders also just have a set amount of percent in gains that they wish to reach with their stocks. For example, some investors only want to reach 20-30% in gains. Once they do, they immediately sell all of their shares and can be happy with nice 20-30% in gains. Please continue reading this extreme guide on how to invest in penny stocks for beginners for more great tips.
Never Buy a Penny Stock Just Because it Had News Come Out
As mentioned earlier, most Penny Stock companies are scams. When such companies release news or PR’s, they will typically use terms such as; we hope to, we are looking forward to, soon, approximately etc.. The SCAM companies will typically never use product delivery dates, real deadlines, actual set amounts and more factual data. Instead they like to play around with the wording in their PR’s and News articles mentioning things like “This PR might contain forward looking statements”, meaning they are not liable for making sure that whatever they are talking about ever comes to fruition.
Take Your Gains and Run
Gains are gains. In the Penny Stock world, it is not unheard of to hear stories like “wow, this penny stock just ran 2,000 percent”. Some traders will try to wait to hit such gains, other traders will sell at 30% gains before the big 2,000 percent run even happens. No matter what type of gains you get, remember.. they are all gains and you just made money. Don’t beat yourself up if you just sold a stock with 400% in gains, and the next day that stock ran another 1,500 percent. You never know what the Penny Stocks might do. Be happy with your gains.
Ignore the Glamour of Penny Stocks
Quite often, you will come across these stories online of the so called “Penny Stock Guru’s”. These people flaunt their fancy cars, beach houses and million dollar stories in front of you and make you think that the world of Penny Stocks is nothing but glamour and fun. This couldn’t be the further thing from the truth when it comes to Penny Stocks. Most people that play around with penny stocks will typically lose their complete investments. Now, don’t get me wrong; there are successful Penny Stock superstars out there, but they are far and in between. Should you aim for something like this? Yes, I would say so; but don’t let this millionaire mentality cloud your mind with mixed emotions on how you should be handling your investment. Slow and steady does it in my opinion. Don’t over extend yourself and don’t put all of your eggs in one basket. This how to invest in penny stocks for beginners is full of great free tips like this one, so please continue on reading.
Develop a Strategy & Stick to It
Once you have spent a bit of time on learning how to Penny Stock trade, you will have developed a strategy that works for you. The strategy may not work 100% of the time, but as long as you are winning 60% of the time or more, you are making money (heck, 51% of the time and you are making money). Anyhow, my point is; once you find your strategy, keep developing it. Keep tweaking it, keep adding things, taking away things and continue working on it. The more time you spend on developing your strategies, the more successful you will be. Try not to bounce around too much by trying too many systems. Stick to one, develop it and win.
Don’t Let Others Discourage Your Penny Stock Obsession
What is the most common thing that you hear out there when you talk about Penny Stock trading? I bet you that it is things like; Penny Stocks are a SCAM, Penny Stock companies are not real, Pennies are super risky, you will lose everything. bla bla bla and bla.. That is all I have to say about that. Don’t let the NAY sayers stop you from achieving your dream. If you put in enough time, dedication, and energy towards learning how penny stocks work, you too can profit from them largely and make massive gains. Don’t let family members, friends, internet, magazines and other mediums take your enthusiasm away. Just because somebody else doesn’t want to spend the energy to learn how this world works, doesn’t mean that there isn’t opportunity there.
3. The Extreme Guide to Mastering Penny Stocks – Starts Here
Mastering Penny Stocks is a craft like any other craft. It takes patience, persistence and a willingness to go where only a small percentage of people are willing to go in order to be successful. You need to ask yourself, are you ready to risk a little for a chance to gain massively? Well, you are definitely in the right place.
The sections that we have thus far covered on this “how to invest in penny stocks for beginners” guide, have focused on answering some questions that needed answering as well as to provide a little bit of insight as far as what one can expect when they are getting heavily involved into the Penny Stock trading world.
The next phase of this extreme guide to penny stock investing will focus on actual tangible information that you can measure, study and understand. There is an actual science to this all. The first section of the continuation of this “extreme guide to mastering penny stocks” will focus on explaining certain terminology that is utilized in the stock market (not just the penny stock world). After that, I will go into things a bit deeper. Here is where things will start making some sense, here is where things will start coming together for you as far as the understanding of how to be a successful penny stock trader.
Alright, without further adieu; the next phase of the extreme guide on how to invest in penny stocks for beginners.
Penny Stock Trading – Terminology
Buying and Selling a Stock
Let’s open things up with an easy one. If you are new and are just now starting to get into trading stocks, you will definitely want to learn how to buy and sell stock shares. Basically, shares are bought and sold through a stock broker (some examples of brokers: TD Ameritrade, Charles Schwab, E-Trade etc..). The stock brokers utilize a market maker to go ahead and broker the deal between you and another individual to buy or sell shares. More about Market Makers later.
Market Order – How To Invest In Penny Stocks For Beginners
Market orders are pretty common in the stock market as a whole, but less common in the Penny Stock trading world. By utilizing a market order, you are basically letting the market maker make the decision for you as far as what price will pay when buying a stock share. The same thing applies when you are trying to sell your stock shares. The best type of order to utilize when buying or selling a stock, is what is called a Limit Order. More to come on this later.
Bidding On a Stock
The bid on a stock is what you are willing to pay for a particular stock. Basically, if the stock is currently trading at .002, you might want to bid .002 (or less or more, depending on how bad you want to get in). Your bid is what you’re willing to pay for this particular stock. Some people like to BID sit a stock. Essentially, what this means is that the buyer will place a bid at a particular price and wait to get filled. This type of buyer is usually willing to miss out on the run of a particular stock unless somebody sells into his bid.
The ask price in the stock world basically means what price you as the seller are willing to sell your shares for. Let us say for example that the bid again is .002, but you are trying to get .0023 for your shares. In this particular case, you will put your limit sell order in at .0023 and hope that the price of the stock rises to meet that asking price. If the price of the stock ends up tanking, let’s say it goes down to .0015, well now you might end up having to take a loss (or you can just hold your shares and hope that the stock price again rises to your asking price of .0023 – plus, you can always adjust your asking price).
A market maker is basically a bank, brokerage, entity or individual that stands ready to purchase or sell shares at any given time during a trading day. When you sell your shares into the BID or you buy shares directly from the ASK price, you are actually purchasing shares from market makers. What this means is that every time you initiate a buy or sell through your broker, the brokers themselves buy or sell your shares through the market maker.
Limit Order – Good Add For the How To Invest In Penny Stocks For Beginners Page
So what exactly are limit orders? When you place a limit type of an order to buy or sell a stock, you essentially tell the market makers the exact price that are willing to pay for the stock (or to let go of your shares). In our case of the .002 example stock, let’s say that the current bid price is .002 and the asking price is .0021, you can go ahead and put in a limit buy order for .0019. Until this price of .0019 is hit, your order will not go through. Same thing applies to Limit Sell Orders, whatever price you put down as your limit sell order, this is the price that the market makers will wait to sell for.
Going Long or Going Short
In the Penny Stock World, going long basically means that you are trying to make money off of the stock going northbound (or up). The going short of a penny stock basically means that you are making money off of a stock going south (or down). When good news comes out on a penny stock, the price of the stock tends to go up and longs jump onboard. When the trend reverses though and the momentum stops, the shorts at that point jump in and ride the stock on the way down making money the whole way.
Spread – BID & ASK Price
The bid & ask price spread are the prices that traders are willing to buy and sell this particular stock for. In the above example, we had a bid/ask spread of .002/.0021. If you try to sell the stock under .002 or buy the stock over .0021, your order will fill at the bid or asking price. Only certain market makers can make buys and/or sells for a price that is different from the bid/ask spread. Sometimes, if the BID/ASK spread is .0021/.0023, you might be able to buy/sell shares at .0022 (the market makers will buy or sell the stock between the spread somewhere).
Pump and Dump
I am including the P&D addition here on this extreme guide on how to invest in penny stocks for beginners as this topic in my opinion is one of the most important things that anybody trading penny stocks should be aware of. So, what exactly is a pump & dump? A P&D is basically when a stock is pre-loaded by an institution, company or an individual(s), the price of the stock goes up as it is being promoted. Once the promotion and momentum of the Pump dries up, the stock starts to free fall, what we call a DUMP. Don’t get suckered into the DUMPs. Buy low, sell on the momentum.
Averaging Your Position Up or Down
Let’s say that you have own some shares in stock ALPHA (fictional name), the shares that you own were purchased at .002. Now, let us say that some bad news comes out and the stock starts going down as people try to get out. Lets say that by the time you find out what happened, the price of the stock dropped to .0015. What you could do in this situation (instead of selling), is to go ahead and average down. What this means is that you try to buy more shares at .0015 or lower. When you do this, the average price that you had paid for your particular shares end up being lower than the initial .002 that you had paid per share. Depending on how many shares you bought at .0015 or lower to average down, your average price could now be close to .0016 or .0017. This way, if the stock turns around and starts going up again, the price of the shares wouldn’t have to go all the way to .002 for you to come out even. In fact, if your average was now .0016 and the stock just wen’t to .0018, well guess what; you are once again in the money and could potentially sell your position for some gains. The averaging up of a stock works in a similar way, just going in the opposite direction.
The Volume of a Stock
When a stock is bought or sold, stock share volume is created. You can actually track and see how many shares are being bought and sold for the day, week, month, minute, hour etc.. Most good brokers will have the Volume built into their charts so that you can get an idea of there is lots of volume on a stock. Some Penny Stock traders out there set alerts with their brokers, so that whenever there is a huge spike of volume out there with any stock; they are alerted (so that they can buy or sell this stock). Lots of volume usually indicates a momentum shift in a stock, either good or bad. Please continue reading this extreme guide on how to invest in penny stocks for beginners.
A Stock’s Share Structure
The share structure of a stock can be broken down into several components. These components are: Authorized Shares, Outstanding Shares, The Float, Restricted Shares, Unrestricted Shares and more. I will go ahead and define a few of the big ones here. Authorized shares is the total number of shares that a company can trade in the open market. Outstanding Shares on the other hand are shares that are already out there trading for a particular stock (they are either being held, bought or sold). The float is the number of shares that can actually be traded out on the open market. Certain institutions and insiders will just hold on to their shares of a stock company. The float typically equals the amount of shares that are out there in the open market minus the institution and insider held shares. The smaller the float, the easier it is for a stock to run big.
(GTC) order – or Good Until Canceled
GTC orders go hand in hand with the limit buying/selling orders in my opinion. When you place a Good Until Canceled limit order, the order will stay open until it is filled or it is canceled. This differs from day orders as day orders expire on the same day that they are placed. GTC orders can be very useful if you are trying to enter a stock at a particular price, but the price of the stock is not quite there yet (but you believe that it will be there at some point soon). With GTC orders, you can just place the order and forget about it.
A Stock’s Volatility
the Volatility of a stock basically describes how a stock moves. Essentially, if the stock moves quickly up or down, or does it take lots of buys or sells for it to move. The more volatile a stock is, the easier/faster it is to make money (or lose it) with it. A stock having a small float helps quite a bit with the volatility of a stock. The smaller the float, the easier it is for it to run. I am really hoping that you have learned something new by now on this “How To Invest In Penny Stocks For Beginners” page. Please continue reading, it just gets better as you go forward. Quite a few hidden GEM’s to be had here on this extreme guide.
A Company Merger
When a merger happens, it is basically two companies coming together to form a single one. When a merge happens, there is quite a bit of opportunity for huge up-side in a Penny Stock. Quite a few penny stock traders out there strictly trader Merger Deals.
A Company Reverse Merger
Imagine that you are a company that would love to trade on the open markets, but just want to go through all of the headaches of going public or if it doesn’t have enough funds to complete all of the necessary forms and paperwork. This is where an existing Penny Stock shell comes into play. A company can quite often pay a penny stock company $10,000 to $50,000 to go ahead and take over this penny stock’s shell. By doing this, the company that wanted to go public already has an established ticker, it has a certain follow-ship and can avoid having to go through the lengthy process of going public. Penny Stock shells make this process much easier.
Penny Stock Trading – Going Into The Deep End (Golden Penny Stock Tips)
Alright. Now that you are starting to get a better grasp on what we are talking about in terms of penny stock trading, I will go ahead and start getting into the deep stuff. When it comes to Penny Stocks, I will spill the beans on what you should and shouldn’t do. You my friend have just hit the jackpot. You should definitely make it a point to know, remember and look for the following things before buying a Penny Stock. I don’t care how good the penny stock sounds, how well the company website looks, how regular the company filings are. Heck, I don’t even care if your own mother suggested that you to buy a particular stock. The things that I will share with you right now will make it safer and less riskier for you to go ahead and purchase a penny stock.
Okay, let’s begin!
Great Share Structure Of a Penny Stock
This is probably one of the most important, if not the* most important thing that I have thus far shared with you on this extreme guide on “how to invest in penny stocks for beginners”. Please follow along carefully. When it comes to the share structure of a Penny Stock, it is super important to pick a stock that has a low amount of Authorized Shares. This stock should also (if possible), not have the number of shares that are currently Outstanding be completely maxed out. If you can find a stock that has a super tiny float, you are at that point golden.
Now, what exactly do I mean by low Authorized Share number and low Outstanding Shares count? Let me give you an example. If the stock that you currently want to buy is trading at around $.0023 right now, you should make sure that the AS (Authorized Shares) amount is no more than 500 Million. Better yet, you should also want to make sure that the OS (Outstanding Shares) number doesn’t exceed 200 to 300 Million. The higher the AS and OS amounts of a stock, the harder it is for this stock to run.
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Look For Past Reverse Stock Splits – How To Invest In Penny Stocks For Beginners
One key thing to look out for before buying a penny stock, is to make sure that there has not been a Reverse Stock split recently. Two reasons why this is important. The first reason is that most penny stock companies that do reverse stock splits are scams and are just out there to get your money. If a penny stock company constantly reverse stock splits, there is a good chance that they will do it again. If this happens, the stock is know to typically take a massive dive as everyone tries to bail. The second reason why you want to stay away from Penny Stocks that have recently done a reverse stock split, is that there is a very good chance that they are diluting the stock by selling more shares to the unsuspecting buyer.
Let’s give an example. A Penny Stock company by the name of BETA (fictional), currently has an authorized share structure of 10 Billion. Their OS is also pretty close to being completely maxed out. This fictional company BETA, decides to go ahead and do a reverse stock split. Let’s say 1 for 1,000 reverse stock split (1/1000). Let’s say that before they do the RS (Reverse Split), you are currently holding 5,000,000 (5 Million shares) that were bought at a price of $.0001/share. (Your 5 Million shares are worth roughly $500 at this time). Now, fictional company BETA decides to do their Stock Split at 1/1,000 shares. What this means, is that the company will go ahead and effectively turn your 5 Million shares into 5,000 shares (everybody else that owned this particular stock at the time of the RS, is having the same thing happen to them). Basically what is happening, is that your 5 Million shares have been divided by 1,000 (now, each one of your 1,000 shares is effectively now worth 1 share). This is some definite gold information so far, please continue reading this How To Invest In Penny Stocks For Beginners guide.
What also tends to happen when an RS occurs, is that the price of the stock shoots up. In this case (the fictional BETA company case), the price of the stock goes up by 1,000. The math is basically done this way, if the price of the stock was .0001 before the RS, then you basically multiply the price of $.0001 by 1,000. After the RS, the price of the fictional BETA stock share is $0.1 (basically 10 cents per share). If you do the math on the shares of this stock after the RS; $0.1 (price) multiplied by 5,000 (shares), you end up with $500. So basically, your initial investment of $500 is still there (you haven’t really lost anything). Yeah, well here is the kicker. Most Penny Stock companies that had an AS of 10 Billion before the RS didn’t get to as 10 Billion AS by playing nicely. In fact, most penny stocks with an AS of 10 Billion pre-RS l start diluting the stock the moment that the price of the stock goes to $0.1 after the RS. Well guess what happens then, your stock price of $0.1 / per share will start going down. You could potentially lose every single cent that you had invested in this penny stock.
Now there, are you excited to completely stay away from and boycott Penny Stocks that have had a recent RS? I truly hope so. If you want me to show you how to look for the Stock Splits to make sure that you don’t get stuck in one by being careless, please take a look at the Premium Access section with all sorts of tips, tricks and real life trading expertise. This Premium Access section is currently under construction and is coming soon.
Try to Find a Penny Stock with a Good Chart
This is another good thing to look for when researching Penny Stocks. What you want to look for are penny stocks that have great charts. A chart pattern that I find to work really well is like this. You want to look for a chart that hasn’t had too much movement going up and down, up and down all the time. The chart on this stock should show a steady line without too much movement. If you can find a stock that is getting steady buying here and there (not heavy buying), the price of the stock goes up by a tick or two, but never too much; chances are that you my friend have found yourself a good pick. I would typically look for stock chart periods of about 3 to 6 months of steadiness (a good solid line). Please take a look at the below image for clarification of this point.
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Look For Good Bid Support on a Penny Stock
When trying to gauge at what price you should enter into a Penny Stock, a good place to start is to take a look at the where the BID support is. First thing you do, is to look at the chart itself. If the chart looks good (a steady line over a few months, there is a chance that there is decent support there holding it at those prices). The second way to check for a good entry point is to utilize L2 quotes. Level too quotes are super useful for Penny Stock trading. To be honest with you, if you don’t have access to L2 quotes and do not intend to get L2 quotes, I recommend that you stay away from penny stocks. L2 quotes are VERY IMPORTANT. Here is how to use L2 quotes to check for good entry. Golden penny stock tips continues – How To Invest In Penny Stocks For Beginners.
Example: Lets say that a fictional penny stock company called BETA is trading at a price of $.0062 / per share. The BID/ASK spread is at $.0062/$.0069. You can actually look at L2 quotes to see what the BID support looks like and where it is. The BID support can tell you how low the price of the stock shares can go and if the BID support is strong enough to absorb any panic sellers or strategic bashers trying to cause a sell-off. In the picture example below, you can see that the BID support is located at the $.006 price. There are quite a few bidders just sitting there and waiting to get filled or they are there to prop up the stock. Judging by the below image, I would say that an entry price of $.0062 all the way up to $.0065 would be acceptable. The BID support at $.006 is pretty strong. There are roughly 581K shares just bid sitting there, and these are only the ones that are showing up. Quite often, Market Makers will hide their true orders (meaning, there could be more shares there that they want to buy but are not showing).
How Big Was the Last Run
As mentioned in the Good Chart TIP, It is important to find stocks that have not run recently or that haven’t had lots of volume. The stocks that I am talking about are called Sleeper Stocks. These stocks lay dormant for a bit of time, but will typically have their day in the spotlight due to their good chart, good share structure, no recent RS etc.. Another important reason as to why you don’t want the penny stock that you are buying to have had a recent run, is because there are a lot of bag holders left in there that would most likely try to exit their position the moment the Penny Stock started moving Northbound. The more bag holders that you have to worry about, the harder it will be for the penny stock to run.
What Does Level 2 Look Like
I had touched on this topic a bit in the BID Support tip. Let’s go ahead and look at the other side of the Level 2 quotes now, the ASK price. Just ask the BID can become stacked (in the form of BID support), the ASK price can also become stacked. This is a very bad thing if you saw it on a Penny Stock that you might be holding. It typically can mean two things when the ASK price gets stacked in that way. Continue reading to find out more on this extreme guide on How To Invest In Penny Stocks For Beginners.
Somebody could be purposely trying to keep the stock from going anywhere, so they stack the ask. Most traders will see this ASK stack as a WALL-HAS-BEEN-PUT-UP type of an action, and will get discouraged with this penny stock,. Some of these novice traders will then start selling their shares into the BID (if enough of them do this, it could cause the penny stock share price to tank). Now, why would somebody want a stock to tank like this by putting up their WALL? As mentioned earlier, typically there are two reasons. Reason one is that it might be somebody trying to get more shares for a lower price (they stack the ASK, people panic sell, and this somebody gets the shares that they wanted and immediately removes the WALL and the stock can now run). What is the second reason then you might ask? The second reason is something much, much worse. We call them bashers, these people make their living off of other traders losing money. These people my friend are called short’s. They make a living by shorting a stock. When they put their fake WALL up, people panic sell, it tanks the price of the stock; the short’s buy back their shares at a lower price and make money. But guess what they just did? They just created a whole bunch of BAG holders that bought shares for a higher price and now that the price of the stock has tanked, these traders are stuck holding bags of worthless stock.
In my opinion, I find shorting of Penny Stocks to be an unethical thing. Especially when people get on the message boards and start bashing stocks to purposely incite fear and try to cause a panic sell-off. I would not suggest going this route (shorting penny stocks), as short’s literally help people lose money. Just my 2 cents about it.
4. Conclusion – How To Invest In Penny Stocks For Beginners
As all good things eventually come to an end, we also have come to the end of this Extreme Guide on “How To Invest In Penny Stocks For Beginners“. I really hope that you have enjoyed this detailed work on Penny Stock Trading for Beginners. I have many years of experience in trading penny stocks and have come to a pretty good understanding of what makes these stocks tick. The strategies, tips, ideas and detailed information that you just finished reading, is just the tip of the ice berg. Come one over into the Premium Access space and take a look for yourself what the fuss is all about. I go into great detail to spell things out for you so that the information is easy to comprehend and understand. Our Ultimate Guides & Penny Stock Trading Recipes found in the Premium Access section have been crafted in such a way, that you can just read them and begin trading immediately.
Please do keep in mind, that nothing in this world is guaranteed. You are not guaranteed a long life, a rich life, a poor life, a healthy or unhealthy life; you are pretty much not guaranteed anything. So just as the real world works, Penny Stocks work in the same way. If you apply some of the techniques, ideas, tips and strategies outlined on this page as well as any other page on our website (LearnedGold.com), you can go ahead and help minimize your risk of losing money with Penny Stocks. However, you can never completely eliminate this risk, and there is a chance that you might lose some or all of your money. But then again, there is also a chance that you could profit massively.
5. Whats Next – Premium Access Section (Coming Soon)
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I wish you good luck with all and happy trading. Fellow Penny Stock Trader.
Extreme Guide on “How to invest in penny stocks for beginners”. The End.
If you would like some additional information about Penny Stocks, you can always check out a website that is an authority on stocks in general here: Investopedia.