Penny Stocking 101
How to get started with penny stocks

Penny Stocks

Last updated on September 21, 2018

What would you do with an extra five or six figures per year? Or $1 million or more?

Most people think I’ve made millions in penny stock trading because I covet the cash. That couldn’t be further from the truth.

Money is just numbers in a bank account or green slips of paper. What money represents, though, is freedom.

Pennystocking has allowed me to travel to more than 100 countries, meet thousands of interesting people, talk about my skills on television, help build schools in underprivileged countries, and buy what I want, when I want it.

It also gives me the freedom to work when I feel like it. If I’d rather jet off to the Bahamas, I’ll do that instead.

Two decades after I first started trading penny stocks, I’m more passionate about teaching than trading. Don’t get me wrong — I still trade nearly every day. But I do it just as much to demonstrate my trades for others as to pad my own bank account.

That’s why I’m publishing this guide to pennystocking for free online. I want you to know the basics of pennystocking so you start pursuing your own dreams.

Maybe you want a huge house. A fancy car. Private school for the kids. A chance to travel. That second home by the beach.

Close your eyes for a second and visualize your dream — that one thing that will make you happy. See it? Now let’s figure out how to help you get it.

My name is Timothy Sykes. To date, I’ve made more than $4.7 million in profits from pennystocking and day trading, and I’ve dedicated my life to teaching other people how to take advantage of pennystocking. That’s where this guide comes in.

Lots of people would charge big bucks for a huge guide like this, but I have another goal in mind. Instead of shaking down people for cash, I’m going to lay out my detailed approach to pennystocking so you can take advantage of it, as well.

Make no mistake: This guide is long because pennystocking is a complex form of security. While shares might be less expensive than the blue-chip stocks other people invest in, you can still lose money if you don’t educate yourself.

You’ve taken the first step by reading this guide, so I’m already impressed. Most people don’t bother with research because they think the low barrier to entry means instant profits.

WIthout further ado, let’s dive into the world of pennystocking so you’re ready to tackle it head-on.

What Are Penny Stocks?

Penny stocks, also known as one-cent stocks, are common shares of small companies that trade at lower prices per share. Despite the name, a stock is considered a penny stock if it’s valued at $5 or less per share.

What Are Penny Stocks
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The companies behind penny stocks are often unstable, new to their industries, or have low net worths. Many only sell a few products or services, and most don’t publish their financial records.

Those are just a few ways in which penny stocks differ from other types of stocks.

Because of their volatility, they also represent an amazing opportunity for people like you and me. The fast-moving stocks allow you to take day trading to a whole new level. Instead of buying a stock when the market opens in the morning and selling shortly before it closes, your trades might last a few hours, a few minutes, or even just seconds.

See why I like pennystocking? It’s the most exciting form of day trading as far as I’m concerned, and once you get started, I think you’ll agree.

But isn’t volatility dangerous? you ask. Of course. It’s extremely dangerous if you don’t know what you’re doing. That’s why lots of newbies fail miserably — and it’s why I’m sharing my secrets for free.

I’m a low-risk kind of guy. I didn’t generate nearly $5 million via the stock market just to lose it all. I value my laptop lifestyle too much.

So I’m conservative with my trades and careful with my research. I’ll teach you how to do the same.

I’ve been trading penny stocks for more than 15 years, and in that time, I turned $12,415 of my bar mitzvah money into more than $4.2 million in trading profits. I like to challenge myself, but I’ve already reached my goal of becoming a millionaire. Now, I’ve turned my focus to teaching.

How to Invest in Penny Stocks

There are several ways to invest in penny stocks. The most common strategy is to buy penny stocks based on your supposition that the stock price will rise, then sell those shares once they reach a desirable price.

That’s a huge oversimplification, but I’ll get into more detail later in this guide.

You can also short-sell penny stocks, which means that you believe a penny stock’s price will decline. You essentially borrow shares that you don’t already own, then sell them when the price drops.

Regardless of how you invest in penny stocks, though, the goal is always to generate a profit. The profits might be small, but they add up over time.

Who Is This Guide For?

Anyone who wants to make money in the stock market can benefit from this guide. Notice I used the word “can.”

Who Is This Guide For
© 2018 Millionaire Media, LLC

Here’s the deal: Many people — even those who read this entire guide — won’t follow my advice. That’s okay. They might even make money in pennystocking with a totally different approach. That’s okay, too.

But those who do follow my advice will have more knowledge and strategies for their first forays into the stock market. If you’re not willing to learn and study, you probably won’t enjoy much success. That’s the bottom line.

10 Steps That Every Penny Stock Trader Must Master

In this article, I’ll cover the 10 essential competencies that you must possess in order to succeed with pennystocking.

penny-stocks-flowchart

How to Trade Penny Stocks

Unlike stocks that trade on the major exchanges, penny stocks are traded over the counter (OTC). If you’re reminded of medications like aspirin and ibuprofen, you’ve got the right idea. However, instead of visiting your local CVS, you create a broker account and trade through the OTC electronic exchanges.

A brokerage account allows you to execute trades with the money in your account. If you’re trading penny stocks, you can open an account with as little as $500. I started with just over $12,000, but you don’t have to follow exactly in my footsteps.

Once you have an account, you can buy and sell stocks. I’ll get into more detail later, but suffice it to say, you’ll trade penny stocks no differently than you would any other stock. The transactions simply happen faster and for different reasons.

What Is Pennystocking?

Pennystocking is, quite simply, the activity involved in trading penny stocks. You decide what stocks to buy, sell, or short based on patterns in the market. I call them price moments.

You’ll know when you’ve found the perfect moment to invest. But that knowledge only comes with education and practice.

If you’re willing to understand charts, patterns, and other aspects of pennystocking, you’ll generate profits. You’re not investing in long-term holdings, like you would with blue-chip stocks, but instead taking advantage of the ebb and flow of a volatile market.

I’ve focused on pennystocking for my entire career, which spans more than 20 years. If I didn’t know I could profit from daily pennystocking trades, I would have given it up long before now.

Benefits of Penny Stock Trading

I said before that penny stocks are complex, and that’s true. However, they’re far simpler than any other type of security.

Benefits of Penny Stock Trading
© 2018 Millionaire Media, LLC

These companies are small and likely new to their spaces. They might even be in danger of going out of business. They’re not required to submit financial documents by the Securities Exchange Commission (SEC), which removes a ton of variables right there.

Because of their simplicity, you can learn to trade penny stocks much faster than you could learn to invest in the New York Stock Exchange or some other larger securities exchange.

Pennystocking is also beneficial because you learn as you go. You’re only investing a small amount of cash in each play, and your returns are equally small. Sometimes you hit a major play that results in six-figure profits, but that’s rare. Instead, you’re growing your wealth over time.

That might not sound like much of a benefit, but my students often tell me how much they appreciate the security and peace of mind pennystocking brings. Big risks might mean big rewards, but they can also mean huge losses.

Ready to learn how to trade penny stocks? Click here to begin

How to Develop Your Penny Stock Trading Mindset

I mentioned before that I don’t like risk. You shouldn’t, either. If you take huge risks in the stock market, you stand to lose huge amounts of money — sometimes well and above what you invested in the first place.

That’s not my idea of a sound trading strategy.

If you want to successfully trade penny stocks, focus on watching stock performance and hedging your bets. Never invest more than 10 percent of your trading account on a single play, and if you have a small trading account, limit that to 1 percent.

You also need to set your own boundaries based on your risk tolerance. What are you willing to bet on a single play, and what will happen if you’re wrong? Write down your own rules and stick to them.

Am I Willing to Work Hard? Am I Willing To Fail?

The word “failure” scares most people. We’re conditioned from the moment we can talk that we should strive against failure. To fail is to disappoint your parents, siblings, teachers, friends, and everyone else you care about.

But in the stock market and in business, failure isn’t just acceptable — it’s unavoidable. You can’t invest in the penny stocks without failing at some point. I’ve failed over and over again.

The important thing isn’t to avoid failure, but to learn from it. If you’re willing to work hard, accept failure, and learn from your mistakes, pennystocking will be right up your alley. You’ll learn that failures eventually turn into success because you’re willing to learn.

You need the right penny stock trading mindset. Keep going to learn how to develop it.

What Are the Most Common Investment Types?

Investments are all over the place. You probably see signs staked into the grassy medians at intersections advertising some get-rich-quick opportunity or another. Some investments are legitimate, while others turn out to be scams.

What Are the Most Common Investment Types penny stock
Businessman pointing finger analyzing statistics financial graph created by Jcomp – Freepik.com

If you want to invest your money wisely, you need a legitimate outlet. Think of it as the difference between getting a job/starting a business or hitting the casino. One option will generate profits, while the other will likely leave you destitute.

Penny stocks are one form of stock. A stock is just a contract — a piece of paper — that gives you partial ownership of a company until you sell it. Companies raise money through the stock market to expand, hire more employees, create new prototypes, and fund other expenses.

As an investor, you buy shares of that company, which can drive up the price. If you make the right play, you sell when the price goes up (or down, if you’re short-selling) and take your profits.

Real estate, bonds, annuities, ETFs, mutual funds, and other types of investments exist, too. You can also invest directly in a company, such as an angel investor, but that’s far beyond the scope of this article.

Stocks vs. Commodities vs. Derivatives vs. Real Estate

Types of investments can be boiled down into four basic categories: stocks, commodities, derivatives, and real estate.

Stocks, as I mentioned above, are pieces of a company. You buy shares (pieces of the stock) at a set price, then sell them for a profit or loss. Commodities, on the other hand, are physical substances that come from the earth, such as gold or wheat. They’re traded on an open exchange, with the most common commodity being oil.

Derivatives are types of investments that depend on something else for their prices. For instance, options trading is a form of derivative. Instead of buying or selling a stock, you form a contract with the option to buy or sell a certain number of shares at a specific date.

Real estate is its own animal. You can invest in real estate by flipping houses sold at auction, renting properties to tenants, and numerous other strategies. It’s not my cup of tea, but lots of people generate signifcant profit from it.

Supply and Demand

Everything in the financial industry revolves around supply and demand. An increased supply reduces demand, but a decreased supply increases demand — and vice versa.

In the stock market, greater demand means more opportunities to sell shares of a stock at a higher price point. Similarly, greater supply allows you to buy in at a reduced rate.

Keep these terms in mind when you begin learning penny stocks. They’ll fuel many of your strategies no matter your trading techniques.

Stock Analysis

Are you ready to dig into the nitty-gritty of penny stocks? The first thing you need to master is stock analysis.

On its face, stock analysis refers to the process of evaluating a stock based on fundamental and technical analysis. Fundamentals are things like profits, revenues, price/earnings ratio, and earnings per share. You’ll learn more about those later in this guide.

penny Stock Analysis
Strategy achievement analysis pad device data created by Ijeab – Freepik.com

On the technical side, you must learn how to read charts. Instead of judging the company itself, you’re evaluating how the stock has performed historically and making an informed decision about its future in the market.

I read chart patterns constantly because I want to see how a stock has performed over weeks, months, or even years. What patterns can I detect in those charts? What might influence forecasted performance?

Not satisfied yet? Click here to learn the down and dirty truths about investment types.

Important Terms That You Need to Know About Penny Stocks

Later in this guide, I’ll define some critical penny stock terms in more detail. For now, I want to give you a brief overview so you’re more educated about the details I mention.

  • Moving averages: Average price per share of a given stock over a specific period of time
  • Breakout: A stock that breaks through resistance to rise in price
  • Breakdown: Stocks that break through resistance to decrease in price
  • Resistance: A price point for a stock that doesn’t seem likely to move outside of a breakout
  • Support: The same thing as resistance except that it’s supporting a lower price point below which the stock is unlikely to fall

Stock Market Terms

Whether you’re trading penny stocks or more expensive stocks, you need to be familiar with the most common stock market terms. I’ll break them down into even further detail later, but here are some of the most common terms to memorize:

  • Buy: Buying shares of a stock with the purpose of profiting off an increase in stock price
  • Sell: Selling shares of a stock to make a profit or prevent further losses
  • Short sell: Borrowing stock you don’t own for the purposes of profiting off a stock that dips in price
  • Buy to cover: Buying back the shares of stock you sold short to profit
  • Bid: The greatest price someone else is willing to pay for a stock
  • Ask: The asking price for a share of stock
  • Spread: The difference between the bid and ask prices
  • Uptick: A situation where a subsequent trade is at a higher price than the previous one
  • Downtick: The opposite of an uptick

I’ll also get into orders and other important stock market terms for you to understand.

Uncertain about your grasp of penny stock terms? Let’s explore them in depth.

How Wall Street Works

Wall Street is an actual road in lower Manhattan, but it’s more colloquially referred to as the financial center of stock market trading. The most successful firms operate there.

You don’t need to be on the trading room floor to take advantage of the stock market, though — especially if you’re interested in trading penny stocks. These stocks aren’t traded on the NYSE or NASDAQ. Instead, they’re traded through the pink/grey sheets, the OTC Bulletin, and the NASDAQ small-cap market.

How to Buy Penny Stocks on Market Exchanges

To buy penny stocks on market exchanges, you’ll need a brokerage account. You deposit funds into your account and execute trades based on the money available.

Main Wall Street Players

penny Stock Main Wall Street Players
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Major investment firms are the major players on Wall Street, but don’t worry about them. They’re not concerned with penny stocks.

The most common players you’ll meet in pennystocking are amateurs. They often fail to conduct research and are therefore more likely to fall flat on their faces.

Stock pickers tell you the stocks in which they think you should invest. In many cases, you can’t trust them, especially if they’re promoters, since they’re probably getting paid to “pump up” a stock, which means you can’t base your decisions on their advice.

Analysts and economists are worth listening to if you’re investing in huge companies, but they’re not likely to give advice on penny stocks.

Wall Street seems scary at first. Let me demystify it for you.

What Are the Key Indicators?

When evaluating penny stocks, you want to look at key indicators to determine whether a stock will perform well in the future. Penny stocks don’t have much in the way of fundamental information because, as I said before, they don’t have to publish financial documents.

However, there are a few things to look for when trading penny stocks. Positive and negative indicators tell you what kind of risk you’re taking on by investing in a particular stock, even at a nominal amount.

Positive Indicators

The positive indicators you want to look for include the following:

  • Positive earnings and new contracts
  • Positive financing
  • New partnerships
  • Increases in trading volume
  • Positive industry news

Negative Indicators

You also want to look for negative indicators that suggest you should steer clear of a stock or short-sell it:

  • Financing secured through desperation
  • Rumors of negativity from within the company
  • Poor industry news
  • Reduced trading volume

Penny stock key indicators can mean the difference between big losses and big losses. Check out what you need to know!

Key Penny Stock Chart Patterns

Since penny stocks are thin on fundamentals, technicals take on a far more important role. Learning how to read chart patterns can make you a better trader. More importantly, you’ll begin to understand how stocks behave in specific market conditions.

This is something that happens over time. You can learn to read chart patterns but still not really understand them. Think of each stock as a personality. It has its own way of moving depending on the company behind it and external factors.

Regardless of the type of chart you prefer, I recommend looking at a six-month snapshot. That’s usually a healthy time period by which to judge a stock’s momentum.

Chart Types

The four most common types of charts are the following:

  • Bar
  • Line
  • Area
  • Candlestick

Personally, I favor the candlestick. It’s easy to read movement in a candlestick chart based on whether the “wicks” are black, white, or red. Others like bar and line charts because of their simplicity, while I don’t know anyone who prefers area charts. They’re messy and difficult to understand at a glance.

Chart Patterns

penny Stock Chart Patterns
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Chart patterns describe how a stock price moves over time — specifically in up and down movements. Although history doesn’t always predict the future, you can identify patterns that allow you to make educated guesses about a stock’s future performance.

Clean Chart

This is my favorite type of chart. The stock’s price moves in one direction — up or down — with regular but brief changes in direction that quickly reverse.

I can’t stress enough that you need to pay attention to clean charts. They’re highly predictive and can allow you to take advantage of quick profits on a long position or a short-sell.

However, you don’t want a chart that looks too clean. This type of chart has an upward or downward trend with almost no variation. An extremely clean chart — especially one that remains clean for six to 12 months — often precipitates a steep increase followed by a steep decrease in price. If you’re not fast enough, you could lose significant cash.

Clean Bullish

You might have heard the terms bull and bear market. A bull market trends upward, while a bear market trends down. The same applies to chart patterns.

A clean bullish chart shows a steady upward trend. The stock price might fall on occasion, but it jumps right back up — often farther than it was before its brief decline. This is a good time to make your play because you’re likely to see the trend continue.

Clean Bearish

A clean bearish chart is the exact opposite of the clean bullish chart. There’s a definitive decline in stock price over time. It might spike every once in a while, but the downhill pattern is evident from first glance.

It often happens after a steep increase in price. A company might announce new funding, for instance, that excites investors. The stock price shoots up, but it can’t sustain the hype, so it begins to fall precipitously.

Clean Breakout and Clean Breakdown

Clean breakouts and clean breakdowns show that a stock has either broken through resistance or fallen below support respectively. The chart is clean because the pattern either repeats itself or shows significant pattern repeats prior to the breakout or breakdown.

Clean Cup and Handle

You can identify a cup and handle chart by its shape. You’ll see a smooth downward trend followed by an equally smooth upward trend. After that, the price drops precipitously. It’s difficult to play this type of chart, but I’ve done it.

Messy Stock

I encourage you to look at messy stocks. Their charts are all over the place with no discernible pattern. The stock price might jump for no reason at all, fall a little bit, rise a little bit, fall again, and so on. But those peaks and valleys don’t repeat reliably.

While I think you can learn from these charts, don’t trade on them. There’s no way to predict what the stock will do next because you don’t have a pattern from which to learn.

Messy Breakdown

A messy break down starts with an upward trend. At first, the chart will look pretty clean (and appealing). Then, seemingly out of the blue, it’ll drop. The pattern becomes extremely messy from there, with dips and increases that have no obvious reason behind them.

Others

Later in this guide, I’ll cover even more chart patterns that you might want to consider watching. I’ll also go into more depth about the patterns listed above so you can begin to visualize what ideal stock charts look like.

I’m all about penny stock chart patterns. You’ll see why in the next chapter!

The Best Penny Stock Chart Patterns

Now, we’re getting to the good stuff. Nobody else (except my Trading Challenge students) uses these charts because they’re mine. I created them after watching stock charts for years and better understanding the patterns that play out.

The Supernova

We’ll start with my favorite. The Supernova looks like a stock chart exploded. It might have experienced modest peaks and valleys over several months, then it skyrockets for a short period of time. If you catch a Supernova, you can easily triple your investment or more. I’ve seen them shoot up to 10 or more times their original price.

The Stair Stepper

As the name suggests, this stock pattern looks just like a staircase when viewed from the side. It goes up, then flatlines, then goes up again. There might be a few dips along the way, but the stair-stepper pattern repeats.

The Snore

Ignore this stock pattern at all costs. It’s incredibly boring because it lacks liquidity and volatility.

The Crow

I named this pattern the crow because it’s like watching a bird pick off your investment one chunk at a time until there’s nothing left. If you start to see a crow pattern, get out immediately to avoid potential losses.

I’ve developed my own penny stock chart patterns. Want to see? Of course you do!

How to Develop Your Own Penny Stock Trading Strategy

There are four things you’ll need to get started with pennystocking.

First, you need at least one brokerage account. This is the account from which you’ll invest in the stock market. I have plenty of recommended brokers, but you’ll need to choose one that works for you. This is particularly true if you’re starting with a limited investment, such as $500 or $1,000.

Second, arm yourself with research. The more, the better. Look at as many stock charts as possible and identify the patterns you see based on what you read in this guide. Return to this guide over and over again until you can practically recite it verbatim.

Third, create your watchlist. This is the list of stocks in which you’re interested. If you identify a pattern you think you can play successfully, execute the trade. Watch it carefully, then get out before you could begin to lose money. In addition to your own list, subscribe to TIMalerts.

Fourth and finally, get a trading diary. This is one of the most important assets for any investor. In it, you’ll record every trade you make as well as your observations and the results. It will help you avoid making the same mistake twice. Plus, it can become a teaching tool if you ever want to help a friend or relative invest in penny stocks.

Do you have a penny stock strategy? If not, you need to read on!

What Do You Need to Succeed in the Penny Stock Market?

What Do You Need to Succeed in the Penny Stock Market
© 2018 Millionaire Media, LLC

The most important thing you can do before investing in the penny stock market is create a set of rules for yourself. You’ll never break these rules because they define your trading strategy.

I have my own list of rules, which I’ll get into below, but keep in mind that my rules might not work for you. We might have different risk tolerances or goals.

When you create a rule for yourself, make sure you understand the reasoning behind it. For instance, let’s say that you never want to risk more than 2 percent of your brokerage account on a single play. That’s reasonable. But why? Maybe it’s because you’re highly conservative, or perhaps it’s because you want to free up more of your capital for other plays.

Tim’s Best Tips from Winning Big

If you’re interested in my rules, all of which have helped me succeed over the years, here they are.

  1. Be nimble
  2. Be conservative
  3. Be thorough
    1. Be aware of the overall market
  4. Be able to stop yourself
  5. Be willing to go long or short
  6. Be committed to taking gains quickly
  7. Be enchanted by simplicity
  8. Be committed to profiting at least $0.50 per share
  9. Be willing to play the long game
  10. Be a retired trader

As I said, you might have different rules. These strategies, though, have helped me become a multi-millionaire and have allowed me to teach people how to play this wonderful game.

You Can Also Learn From My Mistakes

Have you ever lost $500,000 on a single play? I have.

My mistakes are numerous, but I’m still successful. That’s something I want you to keep in mind as you embrace penny stocks. Yes, you’ll lose money, but it’s part of the process. My goal is to help you profit more than you lose.

I created the Trading Challenge for just that purpose. I and other successful traders help newbies learn the ropes and avoid the same mistakes we made.

Learn more about penny stock trading rules, just click here

Enroll Yourself in the Trading Challenge

Are you interested in living the laptop lifestyle? Are you saving for a particular expense? Do you want to free yourself from financial constraints?

If you answered “yes” to any of those questions, consider applying for my Trading Challenge. It’s a fantastic opportunity to learn from some of the best minds in penny stocks and other investment vehicles. We work with people daily to help them achieve their specific dreams.

The Bottom Line

I’m not afraid to give away a ton of information for free. Some people charge thousands of dollars for access to their knowledge, but I’m not that guy.

I hope this guide helped boost your knowledge about penny stocks and the stock market. Are you ready to join my Trading Challenge?