Trust No One Trades

Website Migration

2016-03-07T17:26:00.002-08:00

Over the next few weeks I'll be migrating the posts here over to my new website recursivetrader.com. I'll also be directing more of my focus to developing an algorithmic trading strategy, primarily with the Python programming language (as well as a bit of Java since that's the API provided by Interactive Brokers). If that sounds interesting to you, be sure to check it out!

Correlating Promoters Part II

2016-02-17T15:49:00.000-08:00

Here is where we will gather the data and break down which promoters are most effective. I'll keep updating this post until I'm satisfied that we have a solid handle on which groups are important to keep track of.

02/16/2016

This week The Wolf and StockOfTheWeek pumped PVHO, getting an 18.3% rise out of it. They both also mentioned pumping PRKA last week so presumably both websites belong to the same entity. For the moment I'll let them each keep their own label in gmail but I'll consolidate them into one in the future.

The price action seems too choppy to buy and it's too cheap to short but the percentage move is decent so we won't dismiss them entirely as promoters. The PRKA chart looks horrible though so I won't even bother posting it.

Best American Stocks pumped CLOW which saw a 9.11% rise. It's actually interesting to see how long it took for any gains to materialize since I can see CLOW emails hit my inbox back on February 4th.

CLOW's chart looks much more interesting since it's actually at a level that would make shorting at least plausible. I'd want it to break through that high of around 63 cents and keep running before thinking about shorting but I'm still acclimating to the present-day promotion climate so I'm not sure if that's possible. Looking at the volume, it seems like the promoters were selling heavily into any attempts to breakout but we'll see. I'll keep my eye on it.

The Daily Stock Reporter which I've labeled EGM Firm Inc. based on their email disclaimers, has been pumping GOGY. One such disclaimer reports they have received $15,000 dollars compensation for the promotion though they apparently own zero shares. While GOGY did go up 29.05% (only a $0.009 increase), the chart is so ugly you wouldn't want to waste your time looking at it.

Beat Penny Stocks promoted SNDY. I had originally grouped Beat Penny Stocks with Penny Picks because they were sending identical emails but I can now see in one of their email disclaimers that their true entity name is Stellar Media Group, LLC so I'll change my labels for both of these newsletters to reflect that. According to the disclaimer, the group received $12,500 dollars to promote SNDY. We can also dismiss SNDY as a tradable ticker. The chart is too gross.

Correlating Promoters Part I

2016-02-16T14:00:00.000-08:00

It has been a while since I've look at penny stock promoters so I figured I'd get back into the game by tracking the performance of the various promoters. Back in the day, there were a few big name promoters like Awesome Penny Stocks, Best Damn Penny Stocks, etc. I know many of those guys fizzled over time and became less effective as their notoriety increased.

To see who (if anyone) has taken over this niche with effective stock promotion, I'll be starting from scratch, learning who the players are. If you're new to this site and penny stock trading, I should emphasize now that the stocks being promoted by newsletters are almost definitely horrible companies and should be treated as such. Do not believe anything a newsletter tells you because they are being paid by someone to say it. Read the disclaimers in each email!

Why is this information useful?

There are so many promoters that come and go, it would be a waste of time to track them all. Most of them don't create enough volatility to make trading their tickers worth it. By tracking the performance of various promoters, we can get a handle on who we should pay attention to-- and more importantly, who not to waste our time with.

Ideally we want to find promoters that are able to catalyze significant price moves that will more for good short sells. In all likelihood, a stock promoted by a newsletter is trash and any upward movement will result in future predictable downward movement that we can profit from. We might also consider buying before a run-up but considering the current market conditions, I really, really doubt that will be a viable strategy.

Gather the newsletters

The first step is to gather all the newsletters you can. A simple and effective way to do this is to just search "penny stocks" on google. Click on all those promoted links on the top and on the side that are promising you the best stock picks. You'll want a separate email account for this since we are literally gathering spam which you won't want in the same email account you use for other important correspondence.

One helpful tip about email addresses is that you can amend labels to the email address by using a plus sign. For example, if your email address is myemail@gmail.com, you can provide myemail+whateverlabelyouwant@gmail.com and it will still be considered a perfectly valid email address.

We can use this to our advantage by giving each newsletter it's own distinct label. So when I'm signing up for the newsletter of http://moneymorningresearch.com/, I can give them the email address myemail+moneymorning@gmail.com. This way, if a newsletter shares our email address with any other groups, we can see who we originally gave the email to since it will still have that label with it. In the future I'll post some pictures to illustrate how this works.

Organize the newsletters

Each promoter operates several different stock promotion websites so our goal is to figure out which promoters own which sites. In the past, this was often as easy as reading the bottom of each email to see the name of the parent company. This doesn't seem to be the case anymore which is partly what spurred me to write this guide. I'll try to do some of this work so that others don't have to.

Gmail makes this process easier by allowing us to create filters and labels for each email sender. When you receive an email you'd like to create a filter for, click the drop-down menu beside the reply button and choose "Filter messages like this".

You'll be given the option to make the filter more specific if you'd like. For our purposes, the default will work fine. Click "Create filter with this search" to continue.

The next dialog asks what you'd like to do with the message. Check the box next to "Apply the label" and then select "New label...". Give your label a name that reflects the promoter who sent the email. Since we don't yet know which promoters own which sites, you'll need to create a new label for each newsletter site you subscribe to.

Lastly, we can assign our new labels with colors. This allows us to glance at our inbox and immediately see which promoters are promoting which stocks. This will become more useful as we whittle down our labels to only the most influential promoters.

I'll come back to this and expand on how to use this information in a future post. So keep checking back and in the meantime trade cautiously!

Review: Robinhood

2015-04-16T11:14:00.001-07:00

I’ve been using the Robinhood app for a few months now and have executed a small handful of trades. There is much to like about the app as the aesthetics of the GUI have been carefully implemented so as to achieve a very neat streamlined feel. There is certainly no danger of cluttered data views overloading you with information as some other apps seem to do.

Unfortunately, sleek and sexy interfaces are not the qualities I value most in my trading applications. Relevant, concise, and consolidated data views in conjunction with intuitive interfaces catered to speed are the qualities that will help you make money with your trades. While using the app there were too many times I found myself stumbling through views looking for my order history or even my open positions. It’s a special kind of frustration to be stuck in a trade for longer than you’d like because you have to waste time figuring out how to get out.

It also worried me that being offered only a single point of access to my account, the app, I could become stuck in trades if my device froze up, broke, or otherwise became unavailable for use. There was no backup computer-based application to turn to.

Before I make myself seem too much like a bumbling old geezer struggling to grasp the concept of technology, I should say that it was actually the simplicity of the app that caused me the most problems. The linearly nested structure of navigation made me feel as though I were sitting at someone else’s computer attempting to find files hidden within arbitrarily named folders. I would have preferred a navigational scheme that branched out from a central point so getting to what you’re looking for required fewer clicks. Don’t fear the clutter Robinhood, we need speed!

Worse still, I would never have felt confident basing a trade solely on the chart views offered within the app itself. It simply wasn’t robust enough to allow me to make an informed decision. And by forcing the use of secondary software, it really limited the usefulness of the app.

So at this point the free trades were the only remaining attractive quality but what demographic does this serve? Serious traders who place many trades might benefit the most from a lack of fees but would scoff at the limited set of features and deprioritizetion of speed. And would the casual trader who only places a few trades a year actually be saving money if they made those trades using the limited information offered by the app? My guess would be that a more developed, feature-rich application is worth the cost of trading fees.

If Robinhood has any hope of success, they need to expand their offerings to entice more people. Have some sort of backup to trade with if the app isn’t working (even if it's just another android app). Offer margin accounts or an API to extend its usefulness. There is hope, but at this point I can’t offer any enthusiastic endorsements for Robinhood.

Simple Logic for Trading Herbalife (HLF)

2014-01-29T11:19:00.001-08:00

The current situation regarding Herbalife is getting a lot of media attention so I thought I'd throw some cold logic into the mix.

The premise is that Herbalife, a multi-billion dollar multilevel marketing nutritional distributor, stands accused of operating a pyramid scheme. It seems that the main proponent of this accusation is Bill Ackman, a successful hedge fund manager of Pershing Square Capital Management LP which essentially placed a billion dollar bet that Herbalife was fraudulent and thus worthless.

While these accusations aren't new, Senator Edward J. Markey has recently asked regulators to investigate the issue. There have also been reports that Canada's top regulator has begun looking into the issue.

A quick scan of the twitter buzz on $HLF will make it clear that there are innumerable ways to spin and convolute the issue at hand. To me though, things are pretty cut and dry.

Does it really make sense to buy a stock that is under immediate threat of being found fraudulent?

It doesn't really matter what's true and what's being exaggerated for the short term. At this point, the risk of a major drop greatly outweighs the potential gain of treating this as a bounce play.

Upgrade Your Bathroom Experience

2013-11-28T20:47:00.000-08:00

I'm going to propose an idea here. Sure, you may think it's a little ridiculous at first but hear me out.

Traders are constantly at risk of being betrayed by their bodies. Say you're watching a stock setting itself up for some perfect technical indicator. You wait patiently for the perfect moment to pull the trigger. Then you realize you really have to pee. Do you miss the perfect opportunity? Or worse still, do you pull the trigger and run off, hoping the stock will cooperate with you and continue with the trend you expected. Hundreds or thousands of dollars could be on the line. That's one expensive pee break. One can only imagine the sort of devastation if you had to go number two.

How about we solve that problem? Technological solutions are already entirely pervasive in our modern world. It's about time we make the transition to dedicated bathroom computing.

I don't think you could find a better choice than the Acer Aspire E1-531-4665.With 2.2GHz of processing speed and 4GB of RAM, you'll be placing trades and checking email faster than you can say 2-ply.

Just As I PHOT

2013-11-12T13:32:00.000-08:00

There's no denying that the chart of PHOT looks good today. It could be on the verge of a breakout which would be a huge buy indicator. It also has good volume and plenty of investor interest. It's a medical marijuana company which is a hot sector. Unfortunately, it seems that it is a little bit too good to be true, which is what I first thought as soon as I saw the word marijuana paired with OTC. Much of their success should be attributed to hype rather than solid fundamentals (the latter being what you should prefer in a breakout play).

So What's Wrong?

The first question I ask myself when visiting a company's website for the first time is: "Are they selling products or stock?" In other words, is the company profiting from what they claim to specialize in, e.g. medical marijuana accessories, or just from convincing investors that they're a good company worth giving money to.

Below is a screenshot of their company webpage which at first glance is absolutely selling the stock rather than any products. Go look at any company you trust and check out their website. Chances are, you won't even see a ticker symbol on the page. If you do, they're usually hidden in the footer with a link for investors. Growlife on the other hand features everything you need to know about buying the stock rather than real products. It even includes a headline on the front page that predicts the stock will double in share price. That alone would be a big red flag for me.

Fundamentals

If you're still wondering if you should give them the benefit of the doubt, check the numbers. They aren't pretty. According to their latest 10-Q, the company has less than a quarter-million cash on hand but they have doubled their total liabilities to over three million since last December. Operating losses are growing rather than diminishing over time which doesn't bode well for their future. As of June 30th of this year, they've experienced a net loss of ~2.8 million dollars compared to a loss of ~878,000 that time last year. Not exactly the kind of success story I'd like to buy into.

How Do I Trade It?

Same as anything else! It depends on price action. If that 10 cent level breaks on high volume, it's a buy indicator regardless of how poor the company is. Hype moves stock and there's no reason you shouldn't be profiting from that. That being said, you'll be one of the smart buyers who will know that this company doesn't deserve to be breaking out to new highs. I'm hoping you know enough not to hold onto it if you do buy it.

If you were thinking about shorting it, you've got the right idea but it probably isn't worth it. At 10 cents and solid support at 5 cents, there just isn't enough downside to make the risk worth it. Personally, if the stock fails to break 10 cents I wouldn't pay much more attention to it.

Farewell Awesome Penny Stocks

2013-10-21T08:33:00.000-07:00

It is a day of mixed emotion for penny stock traders all over the world. A major player in the penny stock promotion game has announced it's retirement after recently attracting an unusual amount of attention from the Securities and Exchange Commission.

While APS was no doubt a venomous amalgam of ill-intentioned evil-doers, I can't help but miss them. If nothing else, they were fun to hate and crusade against. For now we can only celebrate the defeat of a parasitic giant while we wait patiently for the void they left to be refilled by the promotional scumbags they left behind. I imagine we won't have to wait long. I for one, am going to put on some tea. Any takers?

Trading With A Full-Time Job

2013-09-29T09:15:00.002-07:00

These past few months, I've been trading while working a full time job. I quickly realized that my undiluted penny stock trading strategy would be too dangerous to use in the workplace. The very thing that makes penny stocks so attractive, their volatility, necessitates constant monitoring while trading them. That just wasn't possible for me, and I suspect the same would be true of anyone else with a full-time job.

Reducing my risk back down to tolerable levels was actually fairly easy. In a way, I just became much more picky. I asked myself several questions:

What major factors are influencing the stock price? (e.g. promotions, CNBC feature, forums, news, etc.)
What are the chances something happens that will drastically drop the price while I'm holding it?
How much do I expect the price to change? Why? Will that change make me enough money for the risk to be worth it?

For the most part, these questions shouldn't be new to you at all. You want to know the answers to questions like these for every trade that you make. The difference though is that I want there to be almost no chance of something unexpected happening, since my ability to react to it will be drastically reduced or eliminated.

I also only want to be trading stocks that I expect to change quite a bit. While I would normally trade something and aim for a 10% gain, but take 3-5%, the revised strategy aims for closer to 15% gains. While I probably won't hit that goal, it means that I only trade stocks with something significant happening. It's a practice of discipline that will force you to sit and watch many opportunities pass you by. You'll be rewarded of course by a much higher win rate.

As an example, we'll look at Google (GOOG):

Google isn't a stock I would normally trade. It's complex, expensive, and traded by thousands of people who are much smarter than me. The good news though is that all those traders means it follows trading patterns since most of them are self-fulfilling prophecies. It also isn't in any major danger of dropping like a rock so long as you watch the SPY. That means I can hold the stock at work without constantly fearing for my wallet in the back of my mind.

My analysis wasn't complicated, since complexity isn't my cup of tea. Instead I happened to catch the stock while it was approaching a major support level, represented by the blue line. I didn't quite get the bottom but waited for a solid green day to buy after bouncing off the support level. My aim was around $900, which I also didn't quite get but I did manage to make an easy 3+% gain on a ~$17k investment. It may not be much, but it was low-risk which is what I wanted.

I'm also waiting patiently for Pacific Clean Water Technologies, Inc. (PCWT) to get high enough to short. The higher it gets, the less risky it is. Unfortunately, as you probably know, shares will also become more difficult to borrow. I'll probably start looking for shares around the 50 cent range, assuming it can even make it that high.

FAQ: I Have A Small Account, Where/How Should I Trade It?

2013-09-11T19:02:00.001-07:00

I get this sort of question a lot from people looking for advice on how to get started with a smaller account. Now it would probably be in my best interest to do what everyone else on Wall Street seems to do and feed you some investing strategy while encouraging you to come back to my blog for future tips and tricks. That being said, I created this blog to help people and the best way to do that is this:

Don't trade with less than $10,000!

While it's certainly possible to make money with smaller accounts, I have to strongly discourage it because the odds are simply stacked against you and trading is all about odds.

I'll explain further.

For small accounts, the fees charged by brokerages represent a larger percentage of your worth than they would for a big account. That translates into requiring a larger percentage gain from your stock trades in order to stay profitable. Here's an example: Small account holder Average Joe buys 800 shares of XYZ at $2.50 a share. Millionaire Max buys 7000 shares at the same price. Within a short time, the price rises to $2.60 for a 4% gain on your investment. Not bad! That's a profit of $80 for Joe and $700 for Max. Unfortunately for Joe his broker charges $7.50 per trade, and $30 dollars a month for software and data feeds. which represents 56.25% of his profit! Those same fees represent only 6.43% of Max's gain.

To compensate for this problem, most novice traders will hold their positions longer, hoping for big percentage gains. Unfortunately, trading isn't that easy and most likely holding longer won't get you any more gains. In fact, you may end up in the red on that trade since more time in the trade equals more risk. In that scenario, all the fees stay constant AND you're going to lose money on that trade. This means that your next trade would need to net you even more money to make you profitable. Thus, your chances of success become less and less likely. You should be starting to understand now that all the little problems traders face are magnified by small accounts. And chances are, since you're new, you're going to be making more mistakes than quality trades.

Small accounts are also at greater risk of going bust than large accounts. You should never invest your entire account into a single trade because you can never be sure if you're right. If trading were that easy, everyone would be making money but the sad fact is that most people lose money because most people don't read this blog. Good traders only risk around 10% of their account on any one trade. If you have less than ten-thousand dollars though, that leaves you with a very small amount to trade and compounds the issue illustrated above. If you go all-in on every trade, you're probably just going to bleed your account into oblivion.

"But hey! I'm making millions on my paper trading account!"

Practicing on paper trading accounts does little more than acquaint you with a particular broker's software. Many of the variables that make trading challenging are diminished or removed in the paper trading world which can mislead you into thinking you're a bit more skilled than you actually are. One big reason is that paper trading is mentally distinct from actual trading because it doesn't punish mistakes in a meaningful way. Introducing the risk of losing your real-life hard-earned money is likely to influence the way you trade. Most notably your ability to accept a loss and get out of a bad trade rather than holding and hoping.

Furthermore, and much less obviously, paper trading diminishes the influence of liquidity and your role in that liquidity (if you want some clarification on liquidity and other basic terms, click here). In the real world, your trade order can influence the price of the stock. While this wouldn't be noticeable if you were trading GOOG, small accounts are probably going to be trading small cheap stocks which are much less liquid. These stocks are going to behave in ways that may not have been apparent in the paper world.

Shorting in particular is not well represented by paper trading. The biggest factor for this trading strategy is the availability of shares. The only way you're going to get an accurate sense of this issue is by actually trading. You have to short early (which is much higher risk) in the real world before the shares become unavailable to borrow. Once the odds are obviously in your favor and the risk is lower, the stock is probably not going to be available to borrow because everyone wants them at that point! As such, these borrows are often only available to large account holders who can manage these higher risk trades. Large losses don't put them out of the game. Shorting also involves borrow fees and fees, as I explained earlier, are bad for the small account holder.

4 Huge Reasons Bitcoin is Worthless

2013-05-22T11:31:00.002-07:00

Bitcoin, the first digital cryptocurrency introduced in early 2009 by the by pseudonymous developer Satoshi Nakamoto, was designed to circumvent institutional influence by offering a more direct person to person exchange of currency. It is, in more ways than it's supporters would like to admit, analogous to cash. Additionally, and the reason why I was interested in writing about it, is that it seems to possess a similar anatomy to that of a penny stock pump and dump.

At the time of this writing, a single bitcoin is worth around $121 USD. Back in April it was valued around $260. Some people have even been so ridiculous as to speculate that it will be worth $100,000. That's certainly impressive but also brings to light the unsettling issue of volatility considering it's worth plummeted by more than half in about a month's time.

Don't fix it if it ain't broke

It's a mantra we hear a lot, and for good reason. It's a waste of time and resources to replace things that are still working without serious issues. Cash already provides us with a deregulated method of trade. If you don't trust institutions, no one is forcing you to keep your money in a bank. The fact is, more often than not, institutions aid us in the safekeeping of our money and governments work to ensure they do it properly.

While the European dept crisis certainly demonstrates the disturbing possibility of what can happen when those plans go south, it's not difficult to point out why bitcoin doesn't offer much in the way of a solution.

Bitcoin is overly technical and nonintuitive

Even the most basic explanations of how Bitcoin is structured and expanded will make the heads of the average reader begin to spin. There is in fact a reason why things like gold and silver have high values; they're tangible, easy to understand, and pleasurable to look upon. Bitcoin, by contrast, is none of those things, barring the way to wide adoption. And of course wide adoption is absolutely necessary for a currency to work because if people don't accept it, they consider it worthless.

This problem is compounded by the currency's dependance on a network. While traditional currencies can be minted and printed to facilitate quick and painless trading, Bitcoin only offers the bulky series of numbers and letters called an address which look like this: 16yXE5cEbKTRbm4U8LFydp1Q9egWHcpcQ9

Bitcoin still relies on institutions

If Bitcoin hopes to survive in the world of traditional currency, it needs some way to be converted between them so as to establish its relative worth. For this it must rely on several loosely regulated groups such as Mt. Gox and Dwolla with essentially no safeguards as to their stability or longevity.

Bitcoin owners are also vulnerable to the same vulnerabilities as people who decide to keep all of their money under a mattress. Computer failures, fires and theft can all result in the loss of your digital wallet and thus your money. While there are workarounds for these problems, a similar level of effort and care can be used to protect your traditional forms of currency which again begs the question, "why switch?"

An internet based currency is plagued by internet users

You don't need a degree in social psychology to notice that anonymity brings out the worst in us. Reading a handful of YouTube comments will prove that point to anyone. In this regard, Bitcoin at an even bigger disadvantage than traditional currencies.

Honest Bitcoin users must traverse a minefield of scams and thieves while using their money in any transaction. Without the sort of regulation that traditional currencies are subject to, Bitcoin users have little recourse to fall back on when they're cheated. Take, for example, an interaction in which two people agree to trade a laptop for a number of bitcoins. Person A sends 5 bitcoins to Person B who then decides not to send that laptop after all. Person A has no one to seek justice from as their government likely doesn't acknowledge Bitcoin as a true currency, thus making it legally unclear if a theft actually occurred at all.

Furthermore, Bitcoins are no longer the sole digital currency which exposes another problem with unregulated currencies. Anyone can make one. The new cyptocurrencies, known as altcoins in the Bitcoin community, serve to make the value of the original more arbitrary and diluted. There are also many rumors that some of these altcoins are controlled by organized crime networks, which makes sense given the lack of concrete legislation overlooking these digital creations.

Personally, I'd rather work on improving the currencies we already have before I start investing in a new one that seems to have a dismal future and no clear hope of overcoming the problems we currently face.

Why XUII Dumped & What's Next

2013-05-14T12:07:00.000-07:00

Today XUMANII (XUII) crashed following the release of a lawsuit put forth by George Sharpe. Mr. Sharp alleged that the promoters were in violation of anti-spam laws.

According to the article on yahoo:

Named as defendants in the case are: Degroupa Tenner Morales Media Corp. and Centro Azteca S.A., the current and former publishers of the Awesome Penny Stocks series of newsletters; and, Victory Mark Corp Ltd., the publisher of newsletters Select Penny Stocks, Preferred Penny Stocks and Penny Stock Heroes.

The problem is, I don't think any of the promoters actually are in violation of the anti-spam laws. Their subscribers voluntarily sign up for the alerts, and all of the emails come with links that allow you to unsubscribe. Consequently, I don't expect the lawsuit to stick or the pump to be over yet. As I write this, it is already on its way to at least partial recovery. While I'm not confident enough to buy this myself, I think it's more likely than not that it will return to the .40s tomorrow. That being said, if you're unfamiliar with the nature of pump and dumps, and you're reading this because you are completely confused by what has happened today, I advise you to close your position. This stock already has too many red flags even before you start looking at fundamentals.

4 Reasons I Don't Trust XUII as the New APS Pick

2013-05-13T08:28:00.000-07:00

Awesome Penny Stocks usually releases their picks on Tuesdays or Thursdays, not Mondays.
While XUII traded millions of shares in premarket and many traders considered this confirmation of the alert, the pick wasn't confirmed by email until around 10:30am. Lot's of speculation creates sketchy unpredictable price action.
XUII started getting pumped by Victory Mark Corp. on May 1st which has made it more crowded and less relatable to previous APS pumps
$ACCS which was speculated to be the new pick before the open did have a classic pre-pump chart. While I'm just guessing here, it made me wonder if they intended this as the pick, then switched to XUII to kill frontrunners. That would also explain the alert being delayed until around 10:30am.

I was hoping that APS would recall their pick but that seems less likely now that they have placed an XUII banner on the website. Regardless, I won't trade this like I would other APS picks. It's just too different which I consider to be risky.

Watchlist: LOTE, WSGP, POLR

2013-05-09T14:04:00.000-07:00

Lot78, Inc. (LOTE)

The size and strength of this pump is so anomalous that it's rather scary to trade. It wouldn't surprise me to see this thing to hit $20 but it also wouldn't be very shocking to me if it crashed all the way to $6 tomorrow. While that sort of volatility is exciting and worth watching for, I haven't traded it. I much prefer lower risk plays. I'll continue to look for shares to short but even if a bunch become available, I'll keep my position size low just in case this thing isn't done being ridiculous yet.

Western Graphite Inc. (WSGP)

A Tobin Smith pump and dump with a disclosed budget of $1,813,286. I first received an email about this on the 22nd of April which also linked to the pump's landing page. I imagine that the landing page went up on the 19th from looking at the volume in the chart. Considering that this pump is getting a bit old, I wouldn't want to hold a sizable long position for very long. The price action hasn't been very bearish yet so I'm not ready to start shorting. It might be an option to buy some dips and sell the bounces but I'm hoping for some strong upward spiking in the next few days that I can feel confident to short in to.

Polar Petroleum Corp. (POLR)

Sort of similar to WSGP in pump style, this one has a disclosed budget of $700,000 on the landing page. It doesn't seem to be getting quite as much attention as other pumps in the market so I highly doubt it will have the momentum to breakout past it's previous highs around $4.25. Everyday that it continues up, I am looking to short it more aggressively.

Beginner's Guide To Trading Penny Stocks: Part III

2013-04-18T13:45:00.000-07:00

Which stocks do I sell?

In many ways, you figure out which stocks to sell using the same methods as figuring out when to buy. You evaluate the price action, fundamentals, level 2, and news/hype.

So say you've bought some shares around 1 dollar because you decided that was a good support level. At this point you should have an idea of how you want to exit that trade based on price action. It would be a good idea to sell your shares if the stock falls below 1 dollar because that indicates the stock is weak or bearish. The closer you buy to that one dollar mark, the less money you will lose should you have to sell out when it breaks below that level.

Hopefully though the stock will go up. There may have been some positive news in the recent past that you think people will take notice of and create more buyers. Their fundamentals may also be strong which gave you reason to believe that the stock deserves to be trading higher (remember though that price action overrides fundamentals. There are plenty of stocks higher or lower than they should based purely on fundamentals). Another good reason to buy could be strong support at the 1 dollar level in your level 2, which further protects you from potential losses as well as indicating buying interest.

In the CLDS example, and presuming the stock continued up, it would be a good idea to consider selling around the $1.40 level because we can see that it is a resistance point. It may go above that, but it may not. And since it didn't go above that level before, you have slightly more reason to believe that it won't so it makes sense to sell there. If you hold your position too long waiting to see if it breaks above that level, you risk missing your opportunity to get out with a profit. Once it does fail to break above a resistance level, other traders will also want to sell their positions and the price will fall.

Once you've comfortable trading, sell points can also mark good positions to enter into a short position. The idea is that you sell the stock before you buy it, thus borrowing it from your broker, then you buy it back later. To do this profitably, you sell high and buy low. Generally shorting is considered more risky though so unless you're sure you understand the mechanics of it, you should first try it out using a paper trading account if your broker offers one.

So how do I find stocks to trade?

...to be continued...

Beginner's Guide To Trading Penny Stocks: Part II

2013-04-06T09:21:00.000-07:00

Which stocks do I buy?

You'll want to decide which stocks to buy based on many factors. The elements you choose to favor when deciding if something will make a good trade becomes your trading style. The two most influential things to consider though are the technicals and the fundamentals. Technical analysis tends to be more important for penny stocks so we'll talk about that first.

What is technical analysis?

Technical analysis concentrates on the price action of the stock in an attempt to identify strategic buy and sell points. In other words, you look at how the stock has traded in the past to predict how it will trade in the near future.

This chart is choked by a slew of technical indicators (those straight lines moving across the graph). Each one purports to tell you something different about the stock in question. Luckily for you, most of them aren't worth learning when it comes to analyzing penny stocks.

Basic technical analysis, and what I rely on most when determining my trades, examines just two things: support and resistance.

In this graph, I've drawn lines to mark the areas of support and resistance. They are determined simply by where the stock has been. We can see that the stock hit the one dollar mark twice in the past then bounced back, thus establishing the one dollar area as support. If the stock were to bounce off the one dollar mark again, that level of support would be strengthened. The more times it hits a support level and fails to break below that level, the stronger it becomes.

The same is true of the resistance level. We can see that the stock hit the $1.43ish level twice, then fell back down. We can then say that this stock price is a resistance level. You can also see that the price action tended to hang around the 1.40 level a bit. This is mostly because it's human nature to favor nice round numbers so people set their trades there more often than they would at some other arbitrary number like say $1.37.

So how do you use this new information? Basically you use these levels to maximize your potential gains, and minimize your potential risk. Continuing with the example of the CLDS chart above, you wouldn't want to trade it at it's current level of $1.25 because it's mid-range of it's support and resistance levels. There's no reliable way to predict if it will go up or down from this point so you're better off not trading it. On the other hand, if the stock fell back to the one dollar level you could consider buying because that level offers support. It also allows you to create a logical trading plan before you even enter into the trade. Your plan might be something like, "I'll buy this stock at $1 and look to sell it at $1.40 where there is resistance. If the stock falls below $1, the support level, I will immediately close my position for a small loss."

The reason why your plan accounts for the breaking of support below one dollar is because the breaking, or collapse of support, is a strong bearish sign. It indicates that the stock will go down so you won't want to have a long position in that stock. A long position means that you've bought the stock in the hopes that it will rise in price.

Which stocks do I sell?

@lx21 Tweets & Results

2013-03-28T18:15:00.000-07:00

Tracking @lx21's tweeted predictions...

$ABKFQ tweet advising short position:

Beginner's Guide To Trading Penny Stocks: Part I

2013-03-28T18:00:00.000-07:00

Penny stocks are an attractive jumping off point for people who have never traded before because they're cheap. You can purchase a large number of shares with only a little bit of money, which means you stand to gain an excellent return if that stock price rises. While these reasons are certainly valid, we need to explore a little deeper to really understand how a novice trader should be making their investments.

What exactly is a penny stock?

Holy crap. You can buy so much stock!

Browsing the internet will uncover several definitions. The term basically just refers to a cheap stock. Personally, I consider stocks less than $5 a share but greater than around 30 cents to be a penny stock. Stocks under 30 cents might be more appropriately termed sub-penny stocks which should be avoided by the novice trader. Penny stocks are also typically less well known so you might not consider a big name company trading under $5 dollars to be a true penny stock.

Stocks, including penny stocks, are traded over exchanges. You've probably heard of some of the major ones such as the NASDAQ. Each exchange has its own requirements that a company must meet for their stock to be traded on that exchange. Since exchanges like the NASDAQ have more strict regulations concerning what companies must disclose and report to investors and the SEC, you won't see many penny stocks trading there. Instead, most penny stocks appear on the Over-The-Counter (OTC) markets.

Characteristically, penny stocks are more illiquid than other stocks. Liquidity, in this case, refers to the stocks volume, which is just another way of saying how many of that stocks shares were traded. A stock with high volume is basically just trading a lot. In order to be liquid though, that volume must be consistent throughout the trading day. Liquidity is important because it determines how easily you can buy and sell that stock.

Never trade a stock with a chart like this

The chart above shows a penny stock with very low trading volume, meaning it is also very illiquid. You may run into charts like this because they often see large percentage changes which create a tempting illusion to new traders. A stock that is up 250% in a single day might make you salivate when considering how much money you can make if you had just bought in the morning. You start to see the illusion for what it is though when you consider all the factors. The biggest problem is that low volume, illiquid stocks, rarely show a clear trend. They may gain 50% or more from a single trade then 30 minutes later be down 100%. Basically, they're terribly unpredictable and you should just train yourself to recognize which stock charts to ignore.

A trend can be more easily seen here

This chart shows a stock trading with extremely high volume, making it liquid. As you can see, it's much easier to see a pattern which is really the key to successful trading. You can use the pattern of the trading to better predict how the stock may behave in the future and plan you're trades accordingly. We'll go into that more later though.

Beyond just looking at a chart, you can use the more quantitative analysis of a stock's dollar volume. Dollar volume shows the relationship between volume and stock price, which provides a more accurate picture of how liquid a stock is. For instance, a stock that trades 20 million shares in a single day might seem like a high volume stock with good liquidity, but if that stock is only valued at $0.0001 a share, it only traded $2000 dollars worth of stock which is pretty much nothing. Dollar volume is usually shown when looking at stock quotes but you can give yourself a rough idea of it by simply multiplying the days total volume by the stocks current stock price (although it would be more accurate to use the stocks average price for that day). A stock that trades a few hundred thousand dollars a day or more is generally going to be liquid enough to consider trading.

Which stocks do I buy?

Audio Alert When Shortable

2013-03-21T16:30:00.002-07:00

Since I use Interactive Brokers, the main method of determining if a stock is shortable has been looking at a colored column. Bright green means there are at least 1000 shares available to short, dark green means you can sell short but there are currently no shares available to do so. Lastly, red means the security is unavailable to short.

The frustrating part is that the stocks with really great risk/reward for shorting quickly have their borrows eaten up by the most attentive traders. Since locates can often become available intraday, you pretty much have to have your eyes on the column at all times if you want those shares. Unless you can devote the screen real estate to have the column visible throughout the day, you'll likely miss some good opportunities.

Luckily there are some other options. The easiest is to just set a GTC order below the best bid so that when shares do become available, you'll get executed. At least theoretically. In practice, that doesn't always work. Day orders actually seem to have priority so you might just use a GTC order to remind yourself to set a day order below the bid every morning. Just be prepared to have both orders execute if lots of shares become available and your GTC order is in range of the stock price.

Even better though, are audio alerts when the stock becomes shortable. That way you don't even have to be at your computer to quickly learn of new borrows on a stock you're watching. I only figured out how to do this yesterday and I'm curious how many other people have figured it out. For now though I'm keeping it to myself because it just seems like too valuable of an edge to give out for free.

OSGIQ: Shipping Gone Wild

2013-03-21T15:26:00.000-07:00

Overseas Shipholding Group Inc. (OSGIQ), traded surprisingly well today, finishing up 51.38% on the day. This impressive move was seemingly catalyzed by nothing more than sector hype and probably some short squeezing.

This is made interesting by the fact that the company has terrible financials. Unfortunately, quoting from them might not be very useful since their latest 8-K released just a few days ago states:

...the Audit Committee of the Board of Directors of OSG, on the recommendation of management, concluded that OSG's previously issued financial statements for at least the three years ended December 31, 2011 and associated interim periods, and for the fiscal quarters ended March 31 and June 30, 2012, should no longer be relied upon.

Regardless, it seems safe to say that the company's financials are weak. Maybe even abysmally so, at least according to two Infitialis reports released back in November. That being said, the stock has tripled since the release of their report so clearly you shouldn't trust all of their predictions.

The best part though is that I think this stock has some more steam, at least in the short term. Originally, I actually tried shorting this midday, thinking it was pretty good risk/reward in the long run. Rather I found incredibly stubborn price action with massive hidden buyers at $3.10 for most of the afternoon. Even the break of the $3.10 level later in the afternoon didn't seem to invite any weakness and the stock even ramped up into the close along with industry leaders EXM (27.66%), DSX (5.38%), and GNK (+7.5%).

So despite poor fundamentals, I now find myself long OSGIQ overnight for several reasons. Perhaps the best reason is that it demonstrated solid price action all day with strong support to limit potential downside risk. The fun reason though is that combined with a strong close and surging sector, the stock has great potential for even more short squeezing. It's my hope that Friday will intensify this effect since shorts may feel even more apprehensive about holding over the weekend. If this surge in price allows the company to escape bankruptcy and releases any positive news, it could really fly. That of course is ENTIRELY speculative and unlikely to occur. Luckily I think today's price action was enough to justify a speculative buy and I eagerly anticipate tomorrows open to see how things play out.

GOFF: Fool's Gold For APS Subscribers

2013-03-18T11:58:00.000-07:00

Earlier this morning AwesomePennyStocks (APS) released GOFF as their latest pick. APS describes Goff Corp. as a mining exploration company with interests in the Aguadas, Department of Caldas, Colombia area. The goal of this promotion seems to be to convince naive investors of the great potential in gold, diamond and silver discovery within this area.

The reality of course is that Goff Corp. is a terrible company that doesn't deserve to be trading at anything more than a penny per share. And that's being generous.

Goff Corp. wasn't always a mining company. It was originally incorporated on July 12, 2010 and aimed to "provide web-based networking and job-placement services for employers and individuals seeking employment in the UK and Ireland" (Form 8-K). The company failed to meet this goal due to inadequate funding.

Goff Corp. has only been a mining company for a grand total of 11 days including today. The recent change in company focus coincides with a change in management as well. The shell had previously been run by Gary O'Flynn and Patrick Corkery, both of whom resigned on February 26th of this year. The sole director of the company is now Warwick Calasse who bought his controlling position in the company (108,750,000 shares) for a mere 25 grand. That amounts to just 0.0003 dollars per share and provides a good indication of what the previous directors considered the worth of the company to be. Previous financial reports confirm this by showing zero income and substantial expenses resulting in a net loss of $29,000 this past year alone.

If you tend to be an overly trusting person who falls victim to the fluffy bullshit of promotional emails, write down this quote from the companies own 8-K filing and stick it to your monitor:

Since we are an exploration stage company, there is no assurance that a commercially viable mineral reserve exists on any of our current or future properties. To date, we do not know if an economically viable mineral reserve exists on our property and there is no assurance that we will discover one. Even if we do eventually discover a mineral reserve on our property, there can be no assurance that we will be able to develop our property into a producing mine and extract those resources. Both mineral exploration and development involve a high degree of risk and few properties which are explored are ultimately developed into producing mines.

The task of discovering said minerals seems further complicated by the fact that the company doesn't have any employees.

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SWVI: The Dangers of Golf Apparel Mining Companies

2013-02-07T08:23:00.002-08:00

Swingplane Ventures, Inc. (SWVI) is an overvalued company poised for a massive collapse in stock price. According to the description found on Yahoo Finance,

"Swingplane Ventures, Inc., a development stage company, manufactures and sells mens and womens golf apparels. Its clothing line consists of tailored-fit golf shirts, pants, and skirts. The company focuses on marketing its products under the Swingplane name through online sales directly to the consumer. Swingplane Ventures, Inc. was founded in 2010 and is based in Broomfield, Colorado."

Strangely, and according to the company's own website, the company actually operates as a mining exploration company that concentrates on the acquisition of copper ore.

The company is currently being promoted by AwesomePennyStocks and its affiliates which is why it is currently trading at levels far above its actual worth. Unsurprisingly, the company didn't have a single news release from the time of its inception in 2010 until late this January when the stock promotion began.

Considering the 472.5 million shares outstanding, the company currently has a market cap of around 190 million dollars. So how much money does this company make in order to be valued at that price? Zero. None. Nothing. As of the last quarter ending September 30th, 2012, SWVI has no income and a debt of 25 thousand dollars in net tangible assets.

Looking back at the last APS pump FARE, counting from the first day of massive volume to the peak of the pump, we see that the promotion lasted about 14 days.

Counting in the same manner we can see that SWVI is due for a similar collapse.

WUHN: One day wonder

2013-01-22T15:30:00.003-08:00

Wuhan General Group Inc. (WUHN), was pumped last night and early this morning by Penny Stock St★r (Tribeca Investments Ltd.) and Marquee Penny Stocks (MHC Inc.). Both entities claimed not to have received compensation for the promotion. In conjunction with this pump, Equities Awareness Group LLC, another pumper, released a press release which could be seen on yahoo finance. The PR featured WUHN along with several other promoted stocks that also had big moves today (MKRS, PIEX, GMEC).

Since neither promoter was compensated with shares, there wasn't as much selling pressure and the price actually held up reasonably well throughout the day. Unfortunately for the followers of the newsletter, the stock gapped up around 350% making the potential for further upside rather dismal. In fact, the high of the day was hit just 35 minutes after the open and showed few signs strength for the remainder of the day.

Despite the fact that the average trader wasn't given a very good opportunity to make money on this stock, the promoters can still call it a job well done. Now they get to brag about their 1,034% intraday profit (which they have in after-hour emails) as well as post a little badge on their website saying they alerted the ticker before such a big move. As you might have gathered, the purpose of these uncompensated pumps is less geared towards making money and more towards building a following of gullible traders. The lazy trader who didn't do their research might read those celebratory emails and decide to invest lots of money into the next pump by Tribeca and/or MHC, with dreams of their money being increased 10-fold. Such reasoning is dangerously flawed and will more likely than not result in a large loss.

For one, future picks by these pumpers will likely be compensated which significantly alters the price action of the pick due to promoter/insider selling. As such, the performance of an uncompensated pump cannot and should not be used as a predictor of performance for compensated picks even from the same promoter. Furthermore, and as we saw today, the intraday percentage gains of these pumps are highly misleading. In reality, the stock only uptrended for a small fraction of the day making it difficult to sell for a profit.

Even if you're familiar with the risks of pump and dumps, these sorts of promos can be dangerous to short sellers. The huge gap up was attractive to shorts and shares to borrow seemed to dry up close to the open around the 0.25 level. Those who shorted that low had to sit through a terrifying squeeze up to 0.45 and are still underwater at this point. Since uncompensated pumps can run so wildly and may not be subject to a catastrophic dump in the near future, there is a whole lot more to lose than to gain with these sorts of plays.

To summarize, read the disclaimer at the bottom of the pump emails/alert pages and be aware of the dangers that uncompensated pumps pose, both for longs and shorts.

Best Damn Penny Stocks: ZPPB

2013-01-15T14:37:00.000-08:00

Best Damn Penny Stocks (BDPS) released Zippy Bags Inc (ZPPB) as their new promotional pick this morning. On the alert page, BDPS reported being compensated $500,000 for the promotion. I received my first email at 9:39am although I heard that others received emails as early as 9:32am.

This time difference is of critical importance if you hope to trade these sorts of moves considering the price had quadrupled within five minutes of the open (before I even received my first alert). Unfortunately, buying after the first few minutes of trading is exponentially more risky with less potential for profit.

That being said, there is still the opportunity to make money later in the day so long as you can tolerate greater levels of risk and can afford to lose your investment should things go sour.

I personally fall under that category of high risk tolerance so I bought 20,000 shares at $0.27 just for 3pm. Unfortunately, I can't say that it was a great trade but I can explain my thoughts to give you an idea of how one can trade these pump and dumps.

Before making such a trade, you need a decent background in pump and dumps, especially BDPS pumps since each promoter's picks behave differently. Previous pumps also offer a better idea of how current picks will perform so it's useful to look back at old charts (in other words, this post will be helpful in the future).

Honestly, I didn't find as many intraday charts from previous BDPS pumps as I perhaps should have before entering into my trade. Instead I was relying on my memory that BDPS pumps rarely dump on the first day of the pump. Another somewhat sloppy mistake that I made was entering my buy order while the stock was hovering in the 0.28-0.29 range during the hour before I was executed. I knew there was support at 0.27, which is why I set my buy there, but it would have been much less risky to simply wait for that level before sending my buy order. As you can see from the chart, the price actually broke through the 0.27 level and even touched 0.25 for one tick which gave me a nice little heart attack. Had the stock continued to fall, I probably would have lost most of my investment.

In order to avoid such panic attacks, you can set price alerts using your brokers software which will audibly alert you to a specific price level. That way you can decide whether the bid support looks firm enough to buy or if it looks like there may be more dipping before a bounce. Watching Level II will greatly aid you in this decision. The caveat though is that many other traders will be doing this as well, making it difficult to get an execution once the price begins to bounce. That though is the quintessential obstacle in trading pumps; it's difficult to buy at the lows when there is strength and it's difficult to sell when the stock is falling and you're watching your money disappear in front of your eyes.

Lucky for me, the stock didn't collapse at that moment and I went on to make a profit. I knew from the previous BDPS pump BFLX that I wrote about here, the price tends to uptrend in the final hour and close strong. From looking at daily charts of previous pumps, I had decided that it would be too risky to hold my position over night since these pumps don't last for very long compared to Awesome Penny Stocks (APS). I set my sell at $0.30 since price action seemed to consider it a key level throughout the day. I initially thought it would even break .30 for a very strong close considering the rise in volume during power hour so I thought I didn't think I was being greedy. Unfortunately the highest tick was 0.2999 and I didn't get executed. A good lesson there is to take safe profits when you have them especially when building a smaller account.

Contrary to my predictions though, the stock actually dipped during the final minutes of trading and I had to exit at an average of 0.286. I also failed to close my entire position and remain long 2.5k overnight. Based on previous pump performance and the tiny position size, I plan to sell my remaining shares tomorrow at the open. After that I may look for shares to short in anticipation of the dump.

Update: Closed the last of my position for a small additional profit. As I expected, BDPS does not provide good setups for gap-up plays. If that's your thing, consider the next APS pump keeping in mind that for each additional day into the pump, the risk of the dump becomes greater and may even occur on the first day if the pick is recalled, the stock is halted, or the company releases a PR stating they have no involvement in the pump and don't know why the price is jumping so much.

The myths and mistakes of amatuer traders

2012-10-01T09:57:00.000-07:00

Even if you only trade occasionally, you've probably consulted some form of internet community for advice, be it a trading forum or chat room. If you haven't, well, you're doing it now. There is a plethora of great information out there, unfortunately it too often seems that for every good tip, there are 5 poor ones that are more likely to steer you into the habits of an unsuccessful trader. In this post I hope to list and debunk some common myths that I often encounter online.

"I want to play BLAH but I don't know how... should I buy or should I short?"
"I know it's a bad short, so it must be a good buy."
"I know it's a bad buy, so it must be a good short"

If you don't have a good idea of which way a stock is going to move, don't play it at all. Just because something is a bad buy or short, does NOT mean that it is a good idea to play the stock in the opposite direction. A stock may be a poor short because there is strong technical support close to where the stock is currently trading. There may also be strong technical resistance above where the stock is currently trading, meaning that it would be a bad trade regardless of whether you went long or short.

"BLAH is going to teh moon!!!"
"Long BLAH"
"All in... BLAH"

It is also imperative that you consider all aspects of the trade. Do not fall victim to the false security of seeing several other traders make the trade you are thinking about. Since 90% of traders lose money, the odds say that those traders just made a bad call and you would be wise to think before blindly following. Read all recent news, and check if there are any planned announcements on the horizon. There are also much less obvious factors such as the release of share lock-ups that could take you by surprise and cause you to lose money. The more research you do, the better you will be prepared to make a good trade.

"BLAH is still being pumped/promoted... it will go back up/it isn't dead yet"

Stock promotions can take many forms ranging from internet forum hype, paid internet ads, spam emails, to mentions of the company on TV. Many people mistake these promotions as a risk free cue to buy. While it is true that many stocks rise initially, even that isn't a certainty. Furthermore, a promotion can go on for weeks as the stock continues to drop. The purpose of a promotion is to allow shareholders to sell so anything being promoted will be inherently burdened by selling pressure. Many times this selling pressure outweighs buying interest, causing price to fall and you to lose money if you buy into the promotion hype.

"BLAH heading north, guarantee that it will hit 5.50 by next week."

There are times when all factors may point to the stock behaving in a certain way. However, even in these cases it is important to shift your thinking into terms of risk and reward. If all your research seems to indicate the stock moving in a particular direction, you may have low risk, but there is always some risk. There are NEVER guarantees in the trading world and you should certainly never take the word of an anonymous internet user of any such "guarantee."

"Any trade that makes you money is a good trade!"

False. Good luck can make you money on a bad trade. If you fail to recognize a bad trade (even if you made money on it), you are liable to continue making such trades which will ultimately come back to bite you in the ass.

"I'm in BLAH now but I don't know when to get out."

You should plan your exit before you ever enter a trade. If you find yourself in a trade and don't know what to do, it is best to get out.