Nightly Topic: What to look for when buying a Penny Stock.
Firstly there are basically three categories of Penny Stocks:
Momentum Pennies. These may or may not be moving on News. It is pure momentum and Board Posts and hype that move them. On these as others there are a few things to look for. How deep into the gain are we when one is looking to buy. If a stock is already up some 300% be very cautious. You will read on many Boards how it is still going to go to the Moon. Do not believe that and make your own decision. The higher the pps is up the larger the risk. There is an exception to that though as is the case with BBDA which I have held since 0008. It's up close to 900% right now and that is still a decent buy IMO. Why? They have their product currently on the shelves of Walmart in a few cities. Not to push BBDA but just using it as an example. Now with that one even though it is up large, there is something to back it up that could push it higher.
Promo Pennies. These are Pennies that are running after the company literally paid a 3rd party to promote their stock by doing daily PR's on it. Most times the PR's sound awesome and make it look like the company is going to go places. Sometimes they may but most times it is just an attempt by the company to pay someone to boost their pps while they (the company) sell shares into the market themselves. These Promos can make huge gains but also as many here on the Board learned they can also tumble quickly and when they do they usually free fall with no warning. Money to be made on those but just be careful. They are NOT long term holds.
Regular Pennies. These are ones that have had no substantial gains and are just tredging along. No real PR's and no momentum behind them. Many people disregard them as they do not have a lot of activity. At some point many of them do pick up out of nowhere and move on up.
What to look for when entering. Regardless of which of the three above categories one falls into there are some things to look at. What is the past 10 day average volume? If is has been low that could suggest lack of interest in that Penny and you may have trouble selling if there is no volume. What is the# of Outstanding Shares (OS). The higher it is the harder it will be for a Penny to move. For instance if a Co has 1.5 billion shares OS it will take a ton of volume to move the pps as there are so many shares out there. On the flip side if there is one that has 78 million shares OS that will move very easy if there is say a daily volume of 23 million shares being that is 1/3 of all the shares available that were traded on that particular day. Another thing to look at is the Bid and Ask (B/A). If there is a wide gap between the two be wary. For instance, a stock may be up 150% and looks impressive but the Bid might be 002 and the Ask may be 005. You can get in at 005 but you may never be able to get out unless you sell at 002 and there goes any chance of a profit and actually selling at a loss.
All in all, there are many things to look at and this is just a couple "Key" points I hit on which hopefully will help.
Bottom line I would probably focus on Pennies that are in the "Momentum" stage and that have not risen all that much yet upon entry. Try looking at ones that are getting lots of attention and might just be starting their run. Also, always take a profit when you have one and never look back. If you are up 40% take it knowing there are 1000's of others out there to invest in. Do not fall in love one particular one thinking you made say 40% and then think you can do another 60%. Many times people fail with that approach. Small gains along the way all add up in the end.
Lastly, I can't emphasize enough..... do NOT get caught up in Board Posts that claim it is going to the Moon. People will turn on their sentiment in a Heartbeat and you'll be left holding the Bag. Play it smart, learn who and what to believe on the Boards and you'll do well. Also ask questions along the way.
Tomorrow nights topic will be Stop Loss and Stop Limit Orders and how they can help you and also hurt you.
