Now, this sounds easier than it appears, actually, the ability to apply a strategy, takes discipline with controlled emotions..This tutorial isn't for everyone and one must have a certain degree of trading experience, mostly in the penny-arcade where profits can be realized in great numbers and knowing when to sell.
As I have mentioned in another article I wrote in 2000 " 3 Day Trading Rule " in " My Strategy in Trading Pennies " in the forum, pretty much explains the pitfalls in trading in pennies..
The concept is simple in isn't own right and resembles the old board game of Monopoly..Why I say monopoly? Is that you are throwing dice to make moves and like Monopoly, you sell less attractive holdings (JUNK) and trade up to strong issues with fundamentals.
Even junk moves on news or promotions by third parties and is one of the prevailing winds that clutter the penny-arcade.This arcade is similar to playing the roulette wheel in Vegas..The odds are stacked against you. So knowing when to get out, is the absolute and is the most important element you must master..
The penny arcade is a crap shoot and 98% of the issues in this venue is absolutely junk, but with that said, they do have moves that one certainly can maximize profits and augment these profits into big board (NYSE, NASDAQ) issues that have strong fundamentals..With the markets experiencing huge losses due to the current economic climate, makes for great buying opportunities never seen since the great depression and other huge declines in the 70s and 80s, where one could go in and pickup issue at records lows.
The problem many traders have, is that they try to guess how much profit one can achieve with a particular issue they may be in..Once a issue starts to run, never try to guess the top or how much profit you want..This one criteria seems to always fail and should never be applied in trading..Nobody can guess the top and for that matter, the bottom..
The soundest way to achieve results with respect to profit-taking, is based on percentages..When a issue starts a run, draw a redline at an imaginary level..I usually start this imaginary line at 25%..Now if the issue has heavy volume and it continues, than good for you and maintain a careful watch, but use this imaginary line and in my case 25%, is a safety valve, in the event it drops, then you know to bail..At least you are still making profit without a total meltdown...Here again, many traders take on the assumption that it could turn, only to be let down..Of course it could turn and is known as a headfake, but it's always better to be safe, than playing with guess work on where the MM will take your issue.
So let's get started.
Now, for this exercise, I'm going to use an issue "TFZI". This issue came out of a shell known as The Fight Zone, Inc and merged in a concept known as Gold Recycle Corp. The issue is trading at .0001 and waiting for a symbol change and has a mountain of shares.
Understand, I'm only using this issue since it is current to this tutorial, but there are hundreds of penny issues you can chose from..
Remember, consider this issue with extreme suspect and caution..However, the business model is unique for the current economic times and currently is running ads in USA and Canada. The have a decent website to explain their concept and others in this sector makes for competition.
Another recent issue that sat dormant for months was MGLG trading in the range of .0001 to .0003 until last week 05/11/09 ran from .0003 to .0033 in one session..This is a 1000% gain and if one sold on the high, whether it be .0025 or even .002 was looking at making huge profits.
Now here is where you must react with smart and discipline without the emotions, in how to start your first part of portfolio building..
Lets say you spent $200 and bought 2,000,000 shares of MGLG and held until it spiked to .0025 and you sold all of it, your grand profit would be $4800..
So with your original $500 and spent $200 to make $5,000 your grand total is now $5300..Not bad on a $200 bet.
As I have mentioned in my " 3 Day Trading Rule " most of these issues are junk, so you move onto another issue and if for example you feel this issue or any other issue has warrant for you to hold, than you must make the appropriate decision and I have written about this as well in " The 3 P's of Investing and the Strategy that can maximize your ROI.. This tutorial explains if the issue has fundamental qualities for you to go long..Remember, trading in pennies means just that, trading them, don't go long unless they have the business model that qualifies as a good sound company that can generate revenue going forward.
Now you must continue to stick to your program of trading pennies for profit and moving those profits into stronger long-term NYSE issues.
You made $4800 on trading MGLG and it's this figure that you must reinvest, but not into another penny stock, that you still have your original $500 set aside..
Although, MGLG made an impressive run that day, I have to mention that this run, up over 1000%, is uncommon and not every issue stands out..Most issues have modest gains if gains can be realized..It is all in the hands of the trader to maximize and understand when to sell and if one holds too long, it may be too late as a decline may be too fast and getting out unobtainable, until it stops it's desent and you have lost all your gain..Why I mentioned above that a imaginary stop or percentage level must be put in place..
Take your $4800 and shepherd this into blue chip securities or mutual funds.
Now take your original $500 and buy TFZI or another issue..Now you may not want to trade the whole $500 and since TFZI is trading .0001 you may elect to only spend $300 and leave in cash the remaining $200 and look for another issue that could give you another potential profit.
Always remember, this is a very risky venue and you can lose and most do, but the rewards are also very gratifying if one does realize such gains..Never reinvest your profit in another penny venture, as this will only defeat your purpose in building a solid portfolio..
Also, don't just look for issues that trade in the .000 range..There are many trading higher that can still give you huge gains. It's just a matter picking one that has the potential for a run..
I can say this with experience, most penny stocks are junk and don't allow your emotions control your trading and stay focused on the objective...It's all about, portfolio building.
Everything on this site is Copyright (c) 2009 by KVR/Varok.Stockmarketquarterly. This material may be distributed only with proper credit to and must include the Author.. Distribution of substantively modified versions of this document is prohibited without the explicit permission of the copyright holder.
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