Five Things Regular Investors Do WRONG When Playing Penny Stock Picks

[nextpage title=”blog” ]

One of the things one should not bring to the smallcap penny stock market is their old school philosophy for due diligence. When you start playing penny stock picks the traditional rules often don’t apply. This post is actually some of the advice I give many people who I see as new to penny stocks, and most simply do not listen. The choose not to listen because they think that everything they learned from their business classes and in their investing books applies to penny stocks.

We’re talking about penny stocks on the Bulletin Board, OTC Markets (and its various tiers), the Pink Sheets and the Gray Markets.  We are also talking about the Venture Exchange in Canada as well.

News Flash:

Everyone that is in the smallcap awareness and the penny stock markets in general has read the same books. Some had the same traditional education that you had. Most watched Jim Cramer back when he was cool.  You know, before he cried to Jon Stewart Jimmy Swaggert style. Most also know exactly what you are looking for and they are going to make sure you find it.lamo-jimbo

Let’s get to the five things most investors do wrong.


[/nextpage][nextpage title=”blog” ]


We’re going to build up to the biggest mistakes, but let’s start with NUMBER FIVE first.

Mistake Number Five:


Don’t trust any source for information about a company outside of information directly from the public company itself. Learn how to determine what the source of a press release is, and only trust those that are authored and truly released by the public company.

Those that make mistakes very often read press releases from entities other than the public company.  They do not understand that these are totally and completely worthless. They are hype designed to get you to buy into the stock. They may come out on the traditional smallcap wires, however, they are nothing but fluff pieces designed to get you to make an impulse buy on a stock you otherwise know nothing about.  Notice in the image above the source of the press release is actually not any of the companies in the headline. It is the company just above the red bar we inserted. Every web site you use to view press releases identifies the source of the release.  If it does not show the name of the public company as the source, then you are reading someone else’s release. In this case it is a small time web site that is trying to sell “premium memberships” for terrific stock tips. I am not even going to list paying for a premium membership in this list of five penny stock no-no’s.

Many times you will see these listed under a stock that you like that is a traditional stock on a major market.  They might have several companies listed in the headline making you think that all of the stocks in the “press release” are equal and should be considered on the same level.   For example they might be looking at Microsoft, Google, Facebook and some new “social media” stock that has a market cap of next to nothing. The source of the releases will usually be some small cap firm, and most of those will come through “Market Wired” formerly “Marketwire.” There are some other smaller wires that also allow multiticker releases.

On rare occasion some third party entities put out press releases on single companies. This is a bit different, but you have to consider what you read. I trust Zacks Research as it is non-compensated.  I trust interview releases which simply announce an audio, video or written interview with a company CEO. Always read their disclosure. See if they are getting paid and why they are even putting out a release.


[/nextpage][nextpage title=”blog” ]


This one is important.

Mistake Number Four:

Technical analysis is totally and completely invalid on high volume promo stocks.

chartsampleIf you read the many forums you always see those embedded YouTube videos with some “technical stock wizard” telling you this chart is primed.  With their technical analysis text book sitting right next to them they start telling you what everything means, and they are usually very proud of their charts. Many put so many comments on the chart that it looks like some kind of fantastic study.

Here’s the truth. It’s all BS. Yes, total and complete BS.

When I said in the intro to this piece that those professionals in this business know exactly what you want to see. They know that if a chart shows a stock fading into nothingness that you are very likely going to skip right over it. There are people out there manipulating these charts on the key promo stocks on a daily basis.

Who are they?

They are almost never the insiders that you find as board members and key execs at the companies. Most often they are third party people that buy up enormous numbers of shares through various means in small companies, and they do so when nobody is watching.   They acquire blocks of shares through various transactions, and they make sure their shares are fully available for trading before they ever begin doing anything with the stock. Many don’t believe it, but I have seen many cases where the company’s management and others closely associated with the public company have absolutely no idea who is “doing this to our stock.”  Long time friends who run various companies or are closely associated with some of these companies have called me asking me to hunt down “who is behind all of this trading.”

Getting back to who they are:   They are very smart people who think they know so much more than the people buying the stock.

They are the ones that pick up 100 shares of a penny stock at the open and moments before the close so they stock opens and closes well. That’s called “painting the ticker” and it is a felony when done to manipulate the market. These transactions are very stupid. Who buys $2 worth of stock and pays $9.95 for the transaction?  The funny thing is that many of these people who do this on a small time basis over and over on a particular stock eventually get caught. The SEC can go in and find out who buys a 100 or so shares day after day to paint the ticker.

You can see how that would definitely mess with “technical analysis.”

Another thing the big time money guys do from outside the country is buy and sell simultaneously in multiple accounts. They see when the buy orders are sell orders are falling off and the buys are running a stock. They know how to slam millions in minutes as sells, then come in and pull the market back up with maybe a tenth of what they just sold.

No guy with some Ihub post showing a video or a chart giving you all the technical analysis jargon can be right when someone out there is painting a chart day after day and selling hundreds of thousands or millions when he sees the opportunity. They also don’t know when he is out of stock, and the house of cards just comes crashing down.


[/nextpage][nextpage title=”blog” ]


idiots-use-the-stop-loss-for-penny-stocksExperts on the major markets use the infamous Stop Loss Order – Don’t Make That Mistake!.

In the penny stock markets it is financial suicide to use a Stop Loss Order.

Here is what you don’t realize:

These markets are manipulated. If someone sees that you have a stop loss order it is really nothing other than a “sell order” that will become an active order when the share price hits a certain level. Let’s say you put in your stop loss order at a loss of 40% or so below the current trading price.  They know that many people use stop loss orders and , they may just pull the price down and let you sell your shares cheap. Then they take your shares and sell them over time at the current market price.   These can be market makers or others that are testing the stock. Sometimes smart traders keep buy orders constantly in at a couple of different firms so they show up through multiple market makers. Then all at once they cancel all orders and see who wants to sell cheap.  The price falls and your stop loss order gets executed.   Inexperienced traders think the stock is “falling apart” and panic sell at the new lower price.   After they get the shares, they raise the price back up.

Sometimes the people pulling the price down are the very market makers and brokers at the firm you deal with. They let you put in a huge stop loss order and greed takes over.

You do realize that when you call in a stop loss order to some penny stock brokers they hang up and laugh? Some look at that as free money, and they make it happen. Yes, it is totally illegal. It is totally immoral, yet they do it.

[/nextpage][nextpage title=”blog” ]


Trusting any penny stock firms emails that tout their past success – unless you have followed them through each and ever success.

I am not going to elaborate too much here, but know that 99% of those spam emails that lead you to sites with these great success records are pretenders.

letspretend1They claim to have told their membership about the last ten stocks that had 300% to 500% gains in 30 to 45 days. They have testimonials and pictures of “Robert A. in Tucson” and “Barack O. in D.C.” Don’t trust their testimonials. Don’t trust their picks. They have an agenda and it is either to get you to sign up to their alerts or some premium membership site (that is actually worthless).

Another quick note:  Many times you see successful firms get their names copied and similar web sites come up that look the same, seem the same, but are not the same people. My own has been copied several times, cloned and pretenders have tried to be us to make a few quick bucks.


[/nextpage][nextpage title=”blog” ]


There are lots of big mistakes, but I am going to give you the biggest and a strategy to avoid it.

The Biggest Mistake with Penny Stock Traders: NOT TAKING A PROFIT (and NOT BEING READY TO TAKE A QUICK PROFIT).

My personal rule when I buy high risk penny stocks is that I immediately put a sell order in that will capture the profit instantly when the stock trades at the level that represents a great profit to me. The sweet spot for me has always been 20%. Love of a stock should end at a quick 20% profit.

You did read me correctly:

dollarsignsyesThe moment you get your confirmation on a successful buy of a particular stock you should stop everything you are doing and calculate a sell price that takes into account the transaction fees coming and going.  Then include a profit you desire in percent.   Put that sell order in.  Do it as a GOOD TIL CANCELED order so that the moment that price is hit you win.

One caveat: This only works on penny stocks with sufficient volume to not get you nickeled and dimed with sell order fees over several days.   So if the stock trades nothing several days a week or a month, you likely should have chosen a different stock. You could lose money if your sell order sells just a few shares at the end of the day as someone tries to pull the price up. You can add ALL OR NONE to your order to protect against that.  Like I noted in the “technical analysis” section above, there are those that will buy a couple of dollars worth of stock just to get the right open and the right close price, and they pull from those that have limit orders. The ALL OR NONE will protect you.

Any thoughts or questions? Feel free to email:


Click on Arrow to Read More

Share this post