Welcome to the Wall Street Observer Trading School! Please Note: The information and tips below are solely based off our own experience and strategies Lesson #1: The Ability to Trade<\/a> \u2022\u00a0\u00a0Lesson#2: About Penny Stocks<\/a> \u2022\u00a0\u00a0Lesson#3: Chart Setups<\/a> Lesson #4: Fundamental Analysis<\/a> \u2022 <\/a><\/p>\n Lesson #1: \u00a0The Ability to Trade<\/strong> Broker aside, No Investor should be trading Penny Stocks without a FULL trading platform from your broker or elsewhere. This includes full charting capabilities, instant execution, and most importantly, real-time Level II Quotes.<\/p>\n What are Level II Quotes? In its simplest explanation, Level II is basically the market depth of each stock, ie: how many sellers are on the ask and how many buyers are on the bid, and the prices at which they are bidding and selling at. I can not stress how important it is to trade with Level II quotes. This is a must-have for any serious trader. Combined with a side panel of the stocks current \u201cTimes & Sales\u201d, Level II Quotes can truly make a difference. \u00a0We will discuss how to disseminate Level II set ups later.<\/p>\n There are a number of places that offer Level II Quotes. You can actually get them from your online broker: the largest brokers such as E-Trade, TD Ameritrade, and Scottrade all have excellent trading platforms which include Level II, however, most require upwards of $20,000 in your account to use these platforms. If you do not have this type of liquidity, we recommend using Equity Feed or Alpha Trade for real time quotes as compliment to your basic trading account for Level II quotes. Equity Feed is quite costly, but if set up right, it can be the most powerful tool you will have. Additionally, EquityFeed has a news streamer \u00a0to keep you on top of any news that may create some momentous activity for the price per share.<\/p>\n <\/a> What causes a Penny Stock to rise? The most crucial catalysts are usually News via Press Releases, hype, promotions, and newsletters. \u00a0 It is important to understand that this market is also full of insiders who manipulate stock prices, short sellers, and companies who dilute their own stock by increasing the share count. \u00a0It is impossible to know how a penny stock will trade with these factors. \u00a0A penny stock may start to run and before you know it, an insider may dump or the company may dilute and that run will effectively be over. \u00a0The best defense is to always research the company, their share structure, and their history to know which stocks to stay away from.<\/p>\n To Day Trade or not to Day Trade? Sometimes penny stocks are only worth holding for a day or even a few minutes! \u00a0It all depends on the liquidity. \u00a0If a stock is trading with great liquidity and is moving fast, your best bet could be to take profit right away. \u00a0Do not worry yourself about missing a few extra gains \u2013 in the long run, if you make it a habit of securing profits when you can, you may see your portfolio grow exponentially. \u00a0Some traders wait for the BIG money trade in which they book a 200-500% gain all the while they are losing on other stocks where they missed the opportunity to grab a 20-30% gain. The trick is not to be greedy.<\/p>\n It is important to note that even the best traders lose money 70% of the time when trading. \u00a0How is it possible to make money trading penny stocks you ask? \u00a0A seasoned trader will tell you that you must know when to cut your losses. \u00a0Timing is everything in this market. \u00a0Using Stops is one way to cut your losses by placing a sell order at the lowest price you are willing to take a loss. \u00a0Remember, if you take a small loss on one stock, there is ALWAYS another opportunity to profit right around the corner from another!<\/p>\n <\/a> There are many other chart formations we will not discuss here as they generally do not apply much to low liquidity penny stocks. \u00a0However, one should be learned in all chart patterns and there are various resources online for this. One such site is: http:\/\/thewildinvestor.com\/my-favorite-stock-chart-setups\/<\/a><\/p>\n Key Indicators we look for:<\/p>\n Below are examples of attractive chart set-ups:<\/p>\n The Chart Breakout:<\/strong> The Bottom Bouncer:<\/strong> The 50MA Break + Higher Highs Entry:<\/strong> Charts can also be used for intra-day trading as well. \u00a0If your platform supports live streaming charts, set your time period from 1-15 minutes (depending how you plan to trade) to identify intra-day dips at support levels and resistance points to take profit.<\/p>\n Chart indicators and patterns may not always mean there is an impending bullish breakout. \u00a0However, coupled with good research and fundamental analysis of the company, you can be one step ahead of the rest. \u00a0We will cover this in the next lesson.<\/p>\n <\/a><\/p>\n Lesson #4: \u00a0Fundamental Analysis<\/strong> Lets begin by going over some terminology:<\/p>\n <\/p>\n For a penny stock, the best place to check the current share structure is at http:\/\/www.otcmarkets.com. \u00a0You will want to make sure the company is current and fully reporting (although this does not necessarily make a stock more or less profitable). \u00a0Many companies are not updated and do not divulge their entire share structure.<\/p>\n Lets look at an example: \u00a0Stock currently trades at .003. \u00a0There are 3 Billion Outstanding Shares and 2 Billion in the Float (about $3 million dollars). \u00a0This may not be a good investment as the company is probably in dilution mode and you may not see much upward movement.<\/p>\n However, if that same stock at .003 has 100 million outstanding shares and 20 million in the float (about $60,000.), you can bet that this stock could move quite easily on increased interest and volume.<\/p>\n Now you are ready to begin your trade\u2026<\/p>\n <\/a> 1. Always use a Limit Order: Most brokers wont even allow you to use Market Orders. \u00a0Limit Orders allow you to set the price that you want to buy and sell the stock at. \u00a0This is common knowledge however, you may see some novice trader make the mistake of placing a market order to sell and take out all buyers at the bid, effectively tanking a thin stock. <\/a> Please also note that many OTC and Pink Sheet stocks show only 5000 or 10,000 shares by some market makers on Level II. \u00a0This simply means that the market maker may have more shares than that amount to buy or sell. \u00a0In fact, it could mean that the MM has 1 Million shares even though we only see 5000!<\/p>\n Here is an attractive looking setup for a Triple 0 Penny: <\/a> However, if you are looking for stocks intra-day, your best bet is to get a scanner and set your filters to the parameters you like (ie. stocks that just broke 50MA or have increasing volume, etc). \u00a0Power E-Trade Pro has an excellent scanner called \u201cStrategy Scanner\u201d and I believe Scottrade and TD Ameritrade have similar. \u00a0EquityFeed probably has one of the best scanners out there.<\/p>\n Congratulations! \u00a0You have now graduated! \u00a0I hope these lessons will help further your trading acumen and lead you to great profits and gains! \u00a0Good luck\u2026and remember, its a jungle out there![\/vc_column_text][\/vc_column][\/vc_row]<\/p>\n","protected":false},"excerpt":{"rendered":" [vc_row][vc_column el_class=”inner-content tr-school”][vc_column_text] Welcome to the Wall Street Observer Trading School! Your Quick and Simple Guide to Trading the Penny Stock Market Please Note: The information and tips below are solely based off our own experience and strategies from years of trading the markets. \u00a0There is no hard and fast rule or strategy to successfully … Continue reading “Trading School”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"footnotes":""},"class_list":["post-14","page","type-page","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.wallstreetobserver.com\/alerts\/wp-json\/wp\/v2\/pages\/14"}],"collection":[{"href":"https:\/\/www.wallstreetobserver.com\/alerts\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.wallstreetobserver.com\/alerts\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.wallstreetobserver.com\/alerts\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.wallstreetobserver.com\/alerts\/wp-json\/wp\/v2\/comments?post=14"}],"version-history":[{"count":7,"href":"https:\/\/www.wallstreetobserver.com\/alerts\/wp-json\/wp\/v2\/pages\/14\/revisions"}],"predecessor-version":[{"id":856,"href":"https:\/\/www.wallstreetobserver.com\/alerts\/wp-json\/wp\/v2\/pages\/14\/revisions\/856"}],"wp:attachment":[{"href":"https:\/\/www.wallstreetobserver.com\/alerts\/wp-json\/wp\/v2\/media?parent=14"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nYour Quick and Simple Guide to Trading the Penny Stock Market<\/strong><\/p>\n
\nfrom years of trading the markets. \u00a0There is no hard and fast rule or strategy to successfully trading stocks.
\nUsing these strategies and tips will NOT\u00a0guarantee stock gains. \u00a0WallStreetObserver.com encourages all users to
\ndo their own research and due\u00a0diligence and consult with a licensed financial professional before investing.<\/p>\n
\nLesson #5: Placing a Trade<\/a> \u2022\u00a0\u00a0Lesson#6: Understanding Level II<\/a> Lesson #7: Finding a Penny Stock<\/a><\/p>\n<\/div>\n
\nYou\u2019ll need a broker. While the days of calling your broker are not quite over, nowadays most traders use online brokerage services. There are a ton online that you should research which have the quickest execution and the cheapest commission fees.<\/p>\n
\nLesson #2: \u00a0About Penny Stocks<\/strong>
\n<\/strong>Trading penny stocks can be quite different than trading stocks that are over $1.00.\u00a0Many times a single trade can drastically influence the movement of a stock and shareholder sentiments on top of that. Since pennies are so volatile, it\u2019s easy to scare off investors with a big sell, or encourage them with a big buy. \u00a0That\u2019s why the key is Liquidity.<\/p>\n
\nLesson #3: \u00a0Chart Setups<\/strong>
\nWe are going to assume you understand how to read charts and are somewhat familiar with candlestick formations and other indicators. \u00a0If not, please do more research as there are various resources for the novice trader on the web.<\/p>\n\n
\nNotice how once the selling volume depleted, we entered into a consolidation zone and hit the bottom support levels. \u00a0As volume began to increase, we saw a MACD crossover and a break of our trend line. \u00a0Once the 50 MA was broken, it became support and eventually consolidated around the 200 MA.<\/p>\n![\"chartbreakout\"](\"https:\/\/www.wallstreetobserver.com\/alerts\/wp-content\/themes\/wallstreetobserver\/images\/chartbreakout.png\")
<\/p>\n
\nNotice how after a great exponential move up, the chart sold-off a bit too drastically. \u00a0Once the chart bottomed, an expected \u201cbounce\u201d was predicted and that became our entry point. \u00a0Our trend line from the previous rise was used as a take profit point where, as you see, it began to consolidate again.<\/p>\n![\"chartbottombouncer\"](\"https:\/\/www.wallstreetobserver.com\/alerts\/wp-content\/themes\/wallstreetobserver\/images\/chartbottombouncer.png\")
<\/p>\n
\nAs mentioned before, we love charts that just break through the 50 MA line. \u00a0This is one of our favorite indicators. \u00a0However, the stock must have volume for this indicator to mean anything. \u00a0It is usually a good signal of an impending bull run. \u00a0Notice how all indicators aligned for this confirmation (Volume increase, RSI slope upward, MACD crossover, stochastic DI+ & DI- cross). \u00a0Also notice how many opportunities there were to catch dips as the chart was making Higher Highs.<\/p>\n![\"chart50ma\"](\"https:\/\/www.wallstreetobserver.com\/alerts\/wp-content\/themes\/wallstreetobserver\/images\/chart50ma.png\")
<\/p>\n
\nIn the penny stock market doing your DD (Due Diligence) can be the difference between making and losing a lot of money. \u00a0You do not want to buy the wrong stock. \u00a0We always encourage researching every company you plan to invest in. \u00a0 But what are the key things to look for?<\/p>\n\n
\nLesson #5: Placing a Trade<\/strong>
\nFirst and foremost, you should always have streaming Level II quotes when trading. \u00a0I honestly do not know how anyone trades without it! \u00a0When trading, please follow the below guidelines:<\/p>\n
\n2. Buy and Sell at the Ask and Bid: Many don\u2019t realize that when you buy at the Ask price, you may be HELPING the stock price to move up! \u00a0Once that offer is gone from the shares you purchased, Market Makers could move up to the next offer price as they will see there are buyers at the current price. \u00a0If you decide to place an order at the bid, you are basically hoping someone will sell their shares to you at this price and risk not getting filled and miss the action. \u00a0It is not always a bad idea to bid sit, as you are creating \u201cbid support\u201d, if you believe the price may come down again and you are not willing to buy higher.
\n3. CHASING A STOCK\u00a0\u2013 Many people want to buy a stock so badly that they end up chasing the stock as it goes up. \u00a0When they finally fill their order, they may have purchased it too high as traders who bought shares earlier begin to take profit, effectively lowering the stock price and making you a bagholder. \u00a0Remember, often a stock could retrace\/dip back to an attractive level for you to grab shares.
\n4. Using Stops: Some brokers do not allow you to use stops, however, if you can \u2013 it is always a good idea to set your stop loss at the lowest price you are willing to take a loss. \u00a0You may kick yourself when the stock moves back up and your stop already executed, but remember, there will always be other opportunities and its always best to cut your losses just in case.
\n5. Stock Gaps: If a stock gaps up too high in pre-market, you may not want to chase it. \u00a0Most stocks that gap up may come down again during the day. When a stock gaps up the market makers could push it lower starting at this time to try to get investors to panic and sell shares back to them so they can make a profit on any shares they are short from filling orders on the gap. If you like the stock and it gaps up you can usually pick up cheaper shares if the market settles back.<\/p>\n
\nLesson #6: Understanding Level II<\/strong>
\nBelow are some examples of Level II setups that are attractive and ones you may want to steer clear of. \u00a0Remember, stocks that have Thin Asks (few market makers at one price) and good bid support (good amount of market makers at the bid) may offer opportunities.<\/p>\n
\nAs you can see, we have very good bid support at .0005 and its looks very thin with only 2 MM\u2019s at .0006 and a few more at higher prices. \u00a0A .0006 entry could set off a run. \u00a0If you owned shares at, lets say, .0002 and wanted to sell you could easily unload at the bid of .0005 with all that support or put an offer on the ask at .0006 which may get hit since .0005\u2032s have so many buyers. \u00a0Note: if you are selling more than 5000 shares, your offer will show up on Level II quotes.<\/p>\n![\"level2trip0\"](\"https:\/\/www.wallstreetobserver.com\/alerts\/wp-content\/themes\/wallstreetobserver\/images\/level2trip0.png\")
Here is an example of a setup that you may want to stay away from. \u00a0As you can see there are plenty of sellers on the ask but the bid support is really thin. \u00a0If you owned shares and wanted to sell them on the bid, you may end up tanking this stock as well!<\/p>\n![\"level2badsetup\"](\"https:\/\/www.wallstreetobserver.com\/alerts\/wp-content\/themes\/wallstreetobserver\/images\/level2badsetup.png\")
Can you guess what may happen here? \u00a0This is what is called a large spread. \u00a0The bid is at .0022 and the ask is more than double the bid at .005. \u00a0If you were to buy at the ask, the stock would be up over 125%! \u00a0You may want to stay away from any set-ups like this.<\/p>\n![\"level2spread\"](\"https:\/\/www.wallstreetobserver.com\/alerts\/wp-content\/themes\/wallstreetobserver\/images\/level2spread.png\")
So whats going to happen here? \u00a0As you can see bid support is ok at .0125 however it looks like we have some tough resistance on the ask .013.<\/p>\n![\"level2resistance\"](\"https:\/\/www.wallstreetobserver.com\/alerts\/wp-content\/themes\/wallstreetobserver\/images\/level2resistance.png\")
Well, well, well\u2026what have we got here? \u00a0This is a very nice Level II setup. \u00a0Excellent support on the bid and a pretty thin ask\u2026<\/p>\n![\"level2goodsetup\"](\"https:\/\/www.wallstreetobserver.com\/alerts\/wp-content\/themes\/wallstreetobserver\/images\/level2goodsetup.png\")
Understanding your Level II quotes is in our opinion the most important tool for trading Penny Stocks. \u00a0Now that you have learned how to trade\u2026how do you find penny stocks?<\/p>\n
\nLesson #7: Finding a Penny Stock <\/strong>
\nI will make this last section pretty brief. \u00a0There are many ways to find penny stocks. There are various Investor Stock Boards to browse through such as investorshub.com and hotstockmarket.com as well as Newsletters. \u00a0However, many Newsletters, like this one, are compensated for the stocks they profile. \u00a0The paying party may own shares of this stock and may liquidate them. \u00a0Please Read the SEC\u2019s Investor Warning<\/a>. \u00a0 You can also comb through http:\/\/www.otcmarkets.com.<\/p>\n