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Traditional stock traders buy low and sell high. My students take things one step further, both buying low and selling high, and then selling short when prices begin falling and buying to cover. This lets us make a profit both on the way up and the way down, but there’s one question you have to be able to answer to do this:
How do I find penny stocks before they spike?
If you want to be able to go long and sell short, you have be able to identify when a stock is spiking. If you don’t know that it’s going up, you’re still able to sell short at its peak – but then you’re only getting half of the profits. And if you can’t tell when the peak is happening, you risk getting squeezed on the position you’re holding long.
Basically, being able to tell when a spike is occurring is pretty important for penny stock traders.
Want to find penny stocks pre-spike? Follow these 4 rules to spot them before anyone else.
Unfortunately, there’s no 100% guaranteed rule that’ll tell you what every stock will do, in every situation (and if you find something like that, give me a call!). But there are a number of signals you can use to predict when a spike will happen. I’ve developed these years over 15 years of trading penny stocks. Learn them. Love them. And use them to make yourself a better penny stock trader.
Rule #1 – Piggyback on stocks that have already spiked a little
One of the quickest ways to identify a spike in the making is to start by finding a stock that’s already moving. Think about it… Which would you rather do? Sit around staring at empty charts, waiting for breakouts to appear out of thin air? Or would you rather use the many research tools out there to find stocks that are already moving? Here’s a stock I bought on Friday aiming to sell into a spike tomorrow:
Notice the stock has been up trending for several days BEFORE I bought.
I’ll give you a hint – one of these strategies takes a whole lot less time than the other…
Rule #2 – Look for potential breakouts that are reaching new highs
I’m always looking for stocks that are breaking out to new highs – especially those that are still up on the day and holding the morning high. You have to be careful with this, though. If you see a play like this on a Friday afternoon and the stock’s still holding its morning high, there’s always the potential for a short squeeze into the close there.
I talk about Friday short squeezes a lot more in my TIMTactics videos, so check them out. It’s a play that all penny stock traders need to learn to recognize and avoid.
Rule #3 – Bet on price action
Here’s how a lot of people try to predict that a spike is happening… They hit up their favorite chat room to see which stocks other members think are moving or how high they think certain stocks are going to go. Or maybe they buy alerts off another “guru” who tells them when to buy based off the spikes they’re predicting.
Now, I’m not saying that chat rooms are all bad. I’ve made tons of money off the plays that the students in my TIMAlerts group have found and posted about for the whole community to see. But ultimately, chat rooms are just that – places for conversation. What you really need to bet on is a stock’s price action.
Price action gives you the real story about a stock. Is it breaking out to a new high? Has it crossed its VWAP? All the news sites in the world won’t tell you when these things happen, but a stock’s chart movement will.
Rule #4 – Do your research
I hate to say it, but a big reason most penny stock traders fail is because they’re lazy. They don’t want to do the research that my students learn how to do. They want someone to tell them what to do, but what do you think happens when you get your tips from someone who’s passing the same information out to thousands of other subscribers? By the time you get the alert, everyone else has moved in – good luck getting your trades executed at the numbers you need to make a profit.
Instead, let me give you an example of the kinds of research my students do to determine when stocks are spiking…
This is One Horizon Group Inc. (OHGI):
Recently, OHGI had a little spike that held around $1.80, thanks to news about downloads of its communications app (OHGI’s product is an international competitor to Skype, Whatsapp and others). I’m not super knowledgeable about tech investing, but that tells me that this is a stock that moves on news.
So, the big question is, when will the next news come?
First, I went to OTCMarkets.com to look up the stock’s filings and disclosures. I saw there the stock had some new SEC news in their filings. It turned out that the company was about to do a presentation at an investor conference. Based on their S-1 filing, I knew that they only had a few million in cash and that they were looking to raise more from a new funding round.
But what was really interesting to me was the copy of the presentation that I was able to look at because I took the time to dig into the SEC filings. In particular, the company included a slide showing a feature comparison matrix that put OHGI ahead of their big-dollar competitors. And a company that puts out a better product than services like Skype and Whatsapp? That’s one that deserves my attention.
So I knew that this was a stock that had spiked before on news, and I knew that news was about to come out about the company’s investor conference, thanks to the presentation I was able to view ahead of time. I bought in anticipation of the hype, and sure enough, when the press release came out the next day, the stock spiked.
I didn’t see it going all the way to $5 a share, but some of my students did – and they made way more money on the deal than I did. And they did it because this was pretty much a textbook setup. All of the signs and signal were there – you just had to do the research to find them.
So what can you learn from these rules?
Proper preparation is key
Most penny stock traders won’t go to all the trouble of digging into a company’s SEC filings. They won’t take the time to read through presentations like the one OHGI posted – let alone try to interpret what all the information found there means.
And that’s why most penny stock traders will bankrupt their portfolios.
Don’t be like most traders. There’s nothing fun or sexy about me recommending that you do your research. If I was trying to sell you a get rich quick solution, I’d fail, because there’s nothing get rich quick about my approach.
But do you know what my approach does involve? Success.
Success requires hard work. It requires determination. It requires the ability to do what other people won’t do in exchange for the kinds of rewards those traders will never enjoy. Proper planning isn’t fun, but it is necessary.
Think like a retired trader
If the rules I’ve listed above tell you anything, it should be that I don’t make a move unless there’s a damn good reason. I don’t buy into a stock because I read online that I should. I only make a play when the signs line up and when my research tells me that the setup I’m looking at meets the criteria for my patterns.
These opportunities don’t come around often (and they’re coming around even less as we move into a more bearish market). That’s why I like to think of myself as a retired trader.
I’m not going to come out of retirement for a so-so stock play – just like a retired athlete isn’t going to come back to play for a minor league team. I don’t waste my time, and neither should you.
The rules above – along with the other guidelines I teach the students in my Millionaire Challenge – show me when good opportunities are happening. I listen to them because they’ve shown me time and time again that I can make good money if I stick to the system that’s helped me make me millions of dollars in trading profits.
I can teach you these patterns, but I can’t teach you the discipline it takes to be a successful penny stock trader. Only you can do that. If you’re ready to give it a shot and put in the time and energy needed to develop a successful mindset, join me today to learn the rules and patterns that’ll pave your way to financial freedom.