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Sunday, April 19, 2009
Information and timing are the most important things for an investor. These two aspects of investing become more important when penny stocks are concerned. Penny stocks are renowned for their “high risk, high reward,” as the adage goes, but then it takes a lot of effort on the part of the investor to know and understand which penny stocks would be worth the risk. Since a penny stock is priced very low, its standing in the market usually is not determined by market capitalization or the manner in which it is listed.
In the United States, penny stocks are traded Over the Counter (OTC) and the standard institution on security exchange, the SEC (Security Exchange Commission), issues adequate warnings about the risk involved in trading with penny stocks. Since these are small shares of small companies, their information can be very challenging to obtain and they can be easily manipulated. In the United Kingdom, penny stocks or penny shares are protected by a mandatory risk warning. In countries like India, penny stocks are known as small cap stocks and though the OTC mode of trading is not really in vogue, these stocks usually find a substantial number of investors. This is because the reward is very high. The investors who have proper knowledge and logical speculation usually ride high with such penny stocks all over the world.
With larger companies, the stakes are high and almost every investor knows something about the company’s growth and expansion plans. Curiosity fuels the quest for information. However, in the case of a penny stock, information is the major challenge for any investor. In addition, these small companies do not file reports or press releases with the standard commissions thereby making it difficult for the regulatory bodies to trace any detailed information about them. This gives way for the possibility of fraud. Given their irresistibility in terms of high-end profits, the regulatory bodies have toughened their rules and position against small companies, and they are encouraging them to file details and information. Needless to say, a vigilant regulatory system, coupled with an investor’s foresight, can yield high profits out of penny stocks.
Generally, high flying investors do not venture into the shares of small companies due to their size and lack of visibility in the share market. But if you are an investor with good contacts and a desire to cash in on any opportunity in the market, penny stocks are worth the risk and effort.
So what is the secret for success with penny stocks?
There are so many factors to consider when you start trading stocks and even many more when trading pennies.
In this article, I will describe the most important single factor that, according to many experts, that has a lot of influence on your success when trading penny stocks. You can also learn about other factors at http://www.stocks-reporter.com .
The first and obvious step when you start trading penny stocks is to identify a few undervalued penny stocks based on their fundamentals and potential. I know that this can be a time consuming task but it is a very important one. Next you will need to choose from your list of undervalued penny stocks one or two stocks that you would like to trade. To make that decision, you will have to check how the Momentum Indicator in those stocks is implemented.
What is the Momentum Indicator?
The Momentum Indicator is designed to track momentum (the energy, thrust, intensity) of the price of a tradable stock. It helps to identify the relative enthusiasm of buyers and sellers involved in the price trend development.
Why is the Momentum Indicator is so vital in penny stocks?
About 95% of penny stocks are trading with very little volume or interest from investors, which makes it very hard to trade or invest in them. It’s very easy to take a position but the difficulties begin when you want to sell the stock.
With low volume trading stocks the spread between the Bid and the Ask can be very high—sometimes even more than 20%. In order to sell, you would have to “HIT” the BID price, which is much lower than the current PPS (price per share) Even if you try to sell at the BID, you may, in many cases, get a partial fill and the BID will drop even lower.
This description is highlights why it is so difficult to trade penny stocks and to make a profit.
So remember it’s not enough to find the “right” stock that you think is undervalued. You also have to know how to trade it.
Happy Trading,
Ron Kyle
Editor
http://www.Stocks-Reporter.com
Saturday, April 04, 2009
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Oscillators are technical indicators that tend to cycle or “oscillate” within a fixed or limited range, and Momentum in general term means strongly movement of prices in a given direction.
Stochastic Oscillator
The Stochastic Oscillator is a momentum indicator, it indicates whether the market is moving to new highs or new lows or is just meandering in the middle. This indicator is based on George Lane ‘s observations.
The Stochastic Oscillator is plotted in two lines Fast %k and Fast %D.
The formula is:
Fast %k = 100 * [( C – L (n) ) / ( H (n) – L (n) )]
Where:
C is the most recent closing price.
L (n) is the low of n previous trading day (or bar).
H (n) is the high price of the same n previous day (or bar).
Usually n is chosen 14.
A 3-period (day or bar) moving average is taken from Fast %k and called Fast %D. Fast %D is used as a signal line in the same way that the moving average of the MACD is used as a signal line for the MACD.
Stochastic Oscillator is plotted in two lines but, usually these lines cross each other many times. Now to smooth the chart, a 3-period moving average is taken from Fast %D and called Slow %D (Also, Fast %D is called Slow %K), so the smoothed chart is plotted with Slow %K and Slow %D.
Using of Stochastic Oscillator
1- Oscillators are used as an overbought/oversold indicator. A buy is signaled when the oscillator moves below 20, and then crosses back above 20. A sell is signaled when the oscillator moves above 80, and then crosses below 80.
2- Also, when %K crosses above or below %D, Buy and sell signals can be given. But, may be crossover occurs frequently in short periods and causes bad results. This using isn’t very common.
Bollinger Bands
John Bollinger created Bollinger Bands in the 1960s; Bollinger Bands are used to determine support and resistance levels. This indicator consists of three lines; the middle line is an exponential moving average of price data and the two outside bands are equal to the moving average plus or minus standard deviation.
Standard Deviation is a statistical measure that indicates volatility of price. The bands will expand when price becomes volatile and they will contract during less volatile periods.
Using of Bollinger Bands
1- Bollinger Bands are used to determine the boundaries of market movements. If a market moved to the upper band or lower band, then there was a good chance that the market would move back to its average. In the other words, when price closes to upper band, market is overbought and when price closes to lower band, market is oversold.
2- Another using of Bollinger bands is that to indicate up-trends and down-trends. If price deflects off the lower band and crosses above moving average then price fluctuate between upper band and moving average, it comes to indicate upper price target. It is visa versa to indicate lower price.
Monday, March 23, 2009
Ron Kaye
Editor
Stocks Reporter.com
If you ask anyone in the finance world what they think about investing or trading penny stocks, the answer that you will probably get will be: “Don’t do it. You will lose your money since 90% of penny stock companies are scams. penny stock companies just want to sell shares and are not interested in developing their businesses.” The truth is that investing or trading penny stocks is a very risky business. So here is the most important tip about penny stocks: Invest only money that you can afford to lose.
If penny stocks are so risky then, why do people invest in or trade them?
The answer is because you can make a lot of money in a short time if you know what you are doing.
If you are still reading and have decided that you want to trade penny stocks, you need the right tools and good advice to help you survive and even win some money.
Step # 1 – Finding the Right Penny Stock to Buy
To discover the right one stock, you will have to do some investigation, or Due Diligence. There are a lot of websites that will help you with your DD and you can find a list of useful ones at Stocks Reporter website.
The following points will guide you in learning important information about a company in which you are interested in investing:
1. Share structure: AS (Shares Authorized) OS (Outstanding Stock) and Float.
2. Transfer agent transparency
3. SEC filing
4. Financial track record
5. Competitive position in its industry
6. Business model
7. Earnings power
8. Valuation or the potential value of the company.
For example, when looking into share structure what you want to see is that there is no dilution. A good sign is when the company has maximized the OS and is close to AS. Watching Level 2 will also give you good indication if there is any dilution from the company. A good strategy is to follow insiders who know the company better than anyone else.
Step # 2 – Deciding When to Buy
After finding the penny stock that you plan to buy, you have to find your entry point and how to execute it the right way. Following the trading in that particular stock for a few days together with chart analyzing will give you a lot of valuable information. At this point it is highly recommended for anyone to learn some basic chart reading or at least let others analyze the chart for you. You can ask for help on many of the popular message boards that discuss stock trading and chart analyzing. An important tip about how to execute the trade in a penny stock is: Be very patient and always try to buy at the BID price.
Step # 3 – When to Sell or The Exit Strategy
The exit strategy is something very personal to different traders or investors.
It is very important to implement your strategy immediately after executing the buy order. In most cases, a good idea would be to set a sell order of 50% of your position at around 20%-30% PPS spike. Another 10%-20% rise of PPS and then sell another 50% of your current position and let the rest ride for a while. In general, your exit strategy should be very flexible and change with news, momentum, and volume. 90% of the time, though, you should sell at the ASK so it won’t affect the run.
TIP: Remember always to take profits.
Happy Trading
Ron Kaye
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