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| Trading |
| Here are some tips about trading stocks. I started investing with technology mutual funds, lost half my money in 2000, then tried to make it back with individual stocks around 2$. That didn�t work well either, so I went to stocks around 1 or 2�. That didn�t work so good either so I started buying sub-pennies to get more chances of making 10 or 100 times my money. It took some time, but finally I got 15 times my money with one stock and then 35 times my money with another. Then everything was easier. I had more money to invest and I made more money on each play. The tips I will give here are mostly about sup-pennies, but some principles can also be applied to higher priced stocks. First, you have to determine what you want. If you want money for your retirement or for some time in the far future, you can put some money in some subpenny or penny stocks you think have some potential and leave it there, hoping they will be worth dollars someday. There is no guarantee that it will happen though. PROBLEMS WITH SUBPENNIES Because there are usually some reasons the stock is at this low price, the company could be in its beginning stages or in some trouble. It could be diluting, that is selling more shares on the market to pay for their operations. And if they do that too much, they can do a reverse split. That is the big risk at this level. The company reduces the number of shares a certain number of times and multiply the stock price by that same number. A stock with a price of $0,001 and two billion shares would have a price of $0,10 and 20 million shares after a 100 for 1 reverse split. Then the price can fall even lower if the company starts diluting again or if a lot of investors sell. The risks are a little smaller with stocks at 1�. But they can go down in the sub-penny range. And they have to go to 10� for you to get a 10 bagger (10 times your money). SWING TRADING If you need to make money fast for some reason, you may consider swing trading. I don�t mean day trading, which is buying and selling a stock the same day. Only 10% of day traders make money. Swing traders on the other hand try to sell at the best moment to maximize the money they make. They may have to wait a little for something to happen. They have to learn when to sell. Sometimes it is best to sell and sometimes it is best to hold and wait to make more money. So how can you be a successful swing trader? First, if you need money fast, the easiest way to do it is to swing as soon as the stock rises a few ticks from the price you bought it. You need to try to find stocks that are near their bottom and you can even go back in the same stock many times if you find one that often goes up and down. For quick profit, you can even go in stocks that are not so good and exit as fast as they move a few ticks. This is easier to do with a stock priced at 0.001 or 0,01. A 0,001 stock only needs to go to 0.0011 for you to make 10% of the money you invested in it (minus the commission of course). And it can�t go much lower. But there are high dangers of dilution and of a reverse split at these levels. It is better to get in a higher priced stock that will move than in a 0.001 stock that will not move. You can invest on both depending on the circumstances. Stocks may (and usually will) go lower after you buy them, then you have to wait till they go back up. That�s why it is better to split your money in many different stocks. That way, each time one of them rises up, you make money and if one or more of them goes down, you can wait on them to go back up because you have the others. Only if all of them go down at the same time, will you be in trouble. Of course, you cannot split your money in too many stocks or you will make very little money on each one and that it would not even be worth it if one of them ran big. When you have your needs met, you can go for bigger profits. At the 0.001 level, you can get quick doubles if the stock goes to 0.002. A stock at 0.003 would have to go to 0.006 to give you a double. That is harder to get and it takes more time. But don�t ignore good plays because they are a little higher. You can get in a stock hoping for a double and if you�re lucky to see the stock start running or get very good news while you hold it, you can make a lot more than a double. WHEN TO SELL If you are lucky to be in a stock that is running, you have to decide when to sell. When a stock is running, it goes so fast and it is so exciting that we tend to think that it will keep running and go much higher. But it will usually stop running at some point and go down fast and then you may get a price a lot lower than the peak if you want to sell. The money you think you have made on a run is not yours until you sell. You can lose all the money you thought you had made very fast once the stock starts going down. So it can be a good thing to decide to take profit and sell at some point, even if that means that the stock may go higher and you end up thinking you would have made more money if you had not sold. When you hold a stock and it peaks only to get back down, you think �I should have sold at the peak and bought back lower�. That makes it seem like a good idea to be a swing trader, but it�s easy to see in hindsight where you should have sold, but it is not that easy to pick the right moment to exit and the right moment to get back in, when you don�t know what will happen afterward. And there is no way you can know. You can guess, but it is mostly a matter of luck if you are right. With experience, you may come to discern some patterns and make better decisions, but there is still no way to know exactly what will happen. This is like gambling. The fact is you will buy at the bottom and sell at the peak only if you are very lucky. Considering that a stock will always have some profit taking at some point during a run and that it will cause some retrace, you can sell at one point and then try to get back in lower. But that is very risky. It is hard to pick the exact moment the stock will start going down and then the exact moment the stock will start going up. You can sell and then the stock can keep going up and then retrace at a higher price than the price you sold at. Or the stock may indeed go down after you sell, but it may not reach the price you want to get back in at and it can turnaround and go back up unexpectedly. Then you have to decide if you wait for the price to go back down, in which case you may miss the run, or if you jump in higher at the risk of seeing the stock go back down. You never know what will happen, so this is all a gamble. You may also have some trouble with some stocks with low volume where you will have to sell at the bid and buy at the ask to get back in. So they are harder to swing trade for a profit. Of course, if you sell a stock and miss getting back in it lower, you can invest in another stock instead of the one you just got out of. To be good at swing trading, you cannot do it with just one stock. If you think that a stock has a lot of potential, you can have long shares that you will keep for the long term and swing shares that you will sell when the stock rises up or on news. That way, you are sure that you will not be completely out of the stock when a run starts and if you are lucky with your swing shares, you can make money with them that you can reinvest in the same stock and get more shares of it or use any other way you want. If good news is expected in the very short term, it may be better not to swing trade and keep all your shares in the stock. The stock may start running before the news is officially announced. If a stock goes down after you buy it and you decide to keep it and wait for it to go back up, you may decide to sell it if it takes too long for the stock to do something. Even if that means selling for a loss, this may be more advantageous because you will get to put the money you have left into another stock that may do better than the one you have, so you will be able to make up for your loss and maybe get more money. WHEN TO BUY First, when you buy a penny stock, it is better to put a limit order (specifying a price) and not a market order. If you put a market order, you may end up paying more than the ask if the stock goes up fast. If you put a limit order at the ask, it may get filled rather fast if enough shares are available. If you put a limit order lower than the ask, you will have to wait for your turn to get the shares of the people who sell with a market order. Your order will get filled only when the stock gets to your price. If you don't get filled soon enough, you may decide to up your bid and put a higher price for your order. If you see a stock starting a run, you can get in and you can make some quick profit. But there is a risk that the run will not last long and the stock will go right back down. There are even pump and dump schemes whereby some investors or some companies start a rumor to make the stock rise up so they can sell shares. The stock will usually then go back down where the pump and dump started. It is an even bigger risk to get in a run that has been going on for a while. It will abruptly stop at some point, there will be some profit taking and the stop will tank very fast and it could go below your entry price and you may have to sell for a loss or stay there until the stock reaches the level you bought in and sometimes it may take a while. If the stock has already been running more than 500%, it is a very big risk. It might be best to wait for the stock to go back down to buy unless there are rumors of good news coming soon, then you may go in, but that is still a risk. It might be best to let a run go on without you, even if that means you can miss a big play than risk going into one that will leave you a bagholder. It is better to go into a stock before it starts to run. But that means you may have to hold them for a while before they get a run. They could of course go down instead of up. At some point, you may decide to give up and sell. BUY ON NEWS? Stocks usually rise up when the company announces good news. So it can seem to be a good idea to buy on the news instead of having to hold a stock for a while hoping that maybe news will come one day. The problem is that news often leaks or is anticipated before it is announced. So the stock often starts to rise up before the news in anticipation of it. When the PR is released, a lot of people see it and buy the stock, so it often rises up fast and if you are trying to buy, you can�t wait for your price, so you end up paying higher for the stock than you would have before the news. It can even take some time before your order is filled and you will pay a rather high price if you put a market order. If you put a limit order, it may not get filled. Depending on how good the news is and if it was anticipated or not, there is usually a run after the news, then when the stock reaches a higher price, some people who bought before the news will take some profit, so there will be a retrace. If the news is really good, the stock may retrace and continue running afterward. But sooner or later, the run will be over and the stock will go down fast as a lot of people sell. If the news was anticipated, the run will be very short and the sell-off might be bigger. If people anticipated more good news than what the PR announces, there could be a very big sell-off. That�s why there is a saying that says �buy on rumor, sell on news�. When a rumor starts, it is the best time to buy. It is best not to jump in when you see some news unless it is extraordinary news. You can wait to buy after the run and the profit taking have ended the days following the news. But you will probably have to wait for the next news or anticipation of news for the stock to rise again. If a stock doesn�t get news for a while, it can go down and become a real bargain. Of course, this could be a bad sign that the company isn�t accomplishing much or doesn�t keep the shareholders informed. Some companies release PRs every week or so with unimportant news. After a while, investors get used to these fluff PRs and the stock stays flat and doesn�t rise on the news. After a stock gets great news and/or makes a big run, it will often stay flat for a while (sometimes for months) if the following PRs don�t add much to the big news. Of course if a stock gets great news after great news, it will keep going up. SOME STRATEGIES A strategy some people use is to sell half their shares after the price has doubled from where they bought. That way, they take back their principal and they can then invest it in other stocks. So they end up having free shares of many stocks that they can let run for the long term. The only problem is that this makes it like they bought the shares they have left at twice the price they bought for it, so if the stock runs big, they make twice less money on it than they would have if they had kept all their money in, but they have more stocks that can run to give them profit, so this can be a good strategy. But if you think a stock will run big in the short term because some news is expected soon, it might be best to keep all your shares in and sell on the news. Some people get in a stock only when it has broken �resistance� which is a level where there was a peak before profit taking started on a previous run. Many people wish they had sold there or hadn�t bought there and will sell if it goes back there again. The stock may go up to the resistance level and go back down many times before it is able to break it. So it is believed that if the stock breaks the resistance, it will run big afterward. That may be true, but with this strategy, you end up buying the stock higher than you could have if you had bought it lower, but then you would have had to wait for it to break the resistance and it might have taken some time. So this strategy is good for a short-term play. Some experts recommend selling a stock if it goes down 8% after you bought it. This is a good idea if you want to preserve your capital, since you will never lose more than 8% on each trade. But a stock will usually go down after you buy it, unless you�re lucky to find the bottom. If you sell them all when they go down, you may be selling all the time and your capital will still diminish every time, so it�s up to you to decide if you want to sell or if you believe that the stock will go back up eventually. Some people put stop losses on the stock they bought, but I have seen in penny stocks that market makers will often bring the price down to take them, so that is a risk. The first half hour of each market day, a stock can gap up. It happens when a lot of people put in buy orders during the hours the market is closed. It is not recommended to buy during that time. Usually afterward there will be a retrace and it can go even lower during the lunch hour. Some people play the gap-ups. They buy a stock the day before and sell around 9:45. Also, stocks often run during the last hour of trading. So the best time to buy is usually between 12 PM and 3 PM. Of course, stocks can run whenever they want to, not just at the beginning and the end of the day. Friday is a good day to buy stocks lower as there is usually less action and less news that day. So you can try to swing trade by selling on Thursday and buying back on Friday. But some stocks do run on Fridays in anticipation of news that may come the following week. IT IS NOT EASY This is like gambling. You never know what will happen after you buy or sell. You do the best you can and make decisions on what you think will happen, but most of the time you will be wrong. Learn from your mistakes, but don�t blame yourself too much. Just try to do better next time. But that doesn�t necessarily mean that you must do the opposite of what you did before. One time, you may have sold too soon. If you decide that next time you will hold longer, that may be a mistake. That time, it may have been better if you had sold early. You have to make your decision on how much the stock has already risen and where you think it can go based on the news or the anticipation of it. You may be lucky to sell right at the peak once in a while, but most of the time, you will sell too early or too late. Bottom line is you can only do the best you can with what you know. What happens afterward doesn�t depend upon you, so things will rarely go exactly the way you think they will and that is not your fault. You have to focus on the money you actually made and not on the money you could have made. And then you just go on to your next play. SHELLS Shells are companies that have ceased their operations. They can be bought by private companies looking for an easier way to become public companies than the long process of registering as an IPO. This is called a reverse merger. If the company who buys the shell is worth more than the price of the shell (which is often the case), then the shareholders can make a lot of money fast as the stock will rise when the reverse merger is announced and will keep rising as the new company announces its revenues. But you never know when this will happen to a shell. It can take months or even years after the time you buy it. According to shellstockreview.com, the best stock strategy is to buy many shells, leave your money there and wait for a reverse merger. You can throw a few hundred dollars to buy a shell once in a while and soon you�ll have a collection of them and you will just have to wait till one of them gets a reverse merger. It would be great if you could put your shells in an IRA account so you don�t pay taxes on all the money you will make when a reverse merger happens. But you cannot put pinksheets or OTCBB stocks in an IRA. But you can put parts of your profits in an IRA after a shell has risen big. If a shell has a lot of shares (big float), the new company may do a reverse split before the reverse merger so it will have a lower amount of shares. This will leave the shell with a higher price per share, so it will diminish the amount of money you can make. So it is best to buy shells with low floats. Shells rise up periodically on rumors that they will have a reverse merger soon, then they go back down if no news is announced. It may be better not to buy on these runs since you may get a chance to buy the shell lower later, but of course, it may happen that a reverse merger will indeed be announced and you will have missed getting in before the news. It is not too late to buy a shell after a reverse merger is announced since the stock will often rise on a period of one to two months as the new company releases it revenues, contracts and financials. But a lot of people will be buying it on the news, so you may pay a rather high price for it, but if the shell has been bought by a private company that is already making a lot of profit, it may be worth it. If an emerging company buys a shell, then of course, the stock will not rise much. You can try to buy shells one at a time when you have some money to invest and leave there for a while. If you buy a shell cheap ahead of its run before and after a reverse merger, you can make a lot of money. When a reverse merger is announced, you can put more money in the shells you already own to add even more gains. Here a few shells with low prices and low floats: HERS, GITN, PCRC, SFII, SMMT and IEME. You can find a list of shells and more information about how reverse mergers work at shellstockreview.com You can also look at the SHELL board on Raging Bull. CMKM DIAMONDS (CMKX) This company owns acres in Saskatchewan that contains kimberlites, some of which may yield diamonds. The problem is the stock may have up to 500 billion shares, but the real numbers of shares is unknown. It will be the key to how much money people will make with this stock. Some people believe the CEO raised the number of outstanding shares to 500 billion to stop a takeover by bigger companies. Some people think the number of outstanding shares may be a lot lower. We simply do not know at this point. Some people think the company may do a merger with UCAD or another mining company. Others think the company may go private. This is all speculation. They have announced they will give two dividends in August. They will probably announce the number of shares to give the ratios of the dividends soon. Then if the number is not too high, the stock will probably rise up. And if they also announce good news about having found diamondiferous kimberlites, it could go very high. Of course, there is never any guarantee in penny stocks. It is all speculation. You can see the Raging Bull board about this stock. It is also often mentioned on Sterling's message board (but what he says about it is speculation) and on IBC Radio. You can look at the company�s website and this site by an investor about it. |
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| For more general tips about investing, see my Investing page. |
| SPORTS WHEELS (SSWH) This company sells car and truck wheels with logos. They should announce contracts with professional sports teams, universities and Nascar as is mentioned in their press release of April 22, but their press release of June 3 indicates they may announce them only by the end of summer. This may give many people a chance to get in lower. They have a new website that doesn't contain much now, but it should be improved eventually. For more information, you can read the message board of Raging Bull about this stock and the Ihub board. OTHER INFO To find other suggestions of stocks that may rise soon, see Niz's Billionaire Boyz Club. But don't believe everything you read on Raging Bull. There are pumpers trying to make their stocks go up so they can sell higher and bashers trying to make stocks go down so they can buy lower. There may be also pumpers and bashers paid by the companies and the market makers. For more tips on trading, you can check out Sterling's website and his message board. |
