While active traders have their reasons for venturing into penny stocks, most new traders know nothing more than being able to buy a lot of shares for not so much.

The term “penny stocks” is a loose term referenced by many; however, I look at true penny stocks as stocks that are under $1. The idea is that these stocks are so low, that they just have to go up, but, in most, cases is there a reason why these stocks are not worth much?

Personally, I am not fan of penny stocks and here are 5 reasons why…

1. Extremely volatile

Active traders like penny stocks because they can move up and down really quick, which obviously makes for a good trade; however, to a new trader this type of condition would almost certainly lead to a string of bad trades and a bad sense of the market overall.

2. Spam and Scams

While I’m sure there are quality penny stocks out there that have the ability to bust out, most of them are usually pawns in a pump and dump scheme: companies pay promoters to pump the stock higher. Eventually these stocks do come crashing down, and so do the accounts of everybody along for the ride. What are stock promoters?

3. Bad Fundamentals, Bad Business

Sometimes the idea could be good and the actual product could be a game changer, but the management just doesn’t know what to do. With penny stocks come more opportunities for the company to just collapse and go away. Obviously if that happens you lose everything.

4. Is it Volatile or is Dead?

I stated earlier that many new traders flock to penny stocks for its cheap price, but it doesn’t matter how cheap the stock is if that stock doesn’t move. While penny stocks can be volatile, they can also be the complete opposite and not move at all… which leads to the next point.

5. Must Do Your Homework

Because of all the above factors just using one type of analysis such as technical can make it difficult to accurately time these type of stocks. In order to truly be successful, you must know the ins and outs of the company. What do they do? How much cash are they dealing with? Are they picking up debt? What is needed for them to finally break out? The questions go on and on, and if you don’t know the answers then it will be hard timing these penny stocks.

So you can see why I’m always hesitant to deal with penny stocks. If you’re not looking to track your stocks like a hawk, then consider looking at other type of stocks to trade.

Lets face it… while some people might believe the economy is getting better unless employment can somehow miraculously get fixed we won’t be making any major strides in the positive direction.

All this being said, there have to be some stocks that benefit from this.

Well one BIG stock we will be looking at today is Walmart (WMT). Just look at the chart for a second and see if you can notice anything specific here…

Walmart was at its highest points last winter and pretty much fizzled for much of 2009, which coincidentally falls between the same time as our recent bull rally we experienced.

Breaking out the fibonacci retracement tool, we can see Walmart is on the cusp of breaking over the 62% line, which could end up in some nice moves for the discount retailer.

Now before we got all hyped up about this stock, remember that Walmart is not necessarily the biggest mover. Odds of making 20+% returns with this stock are somewhat rare, but at least we have the possibility of a solid winner here.

If we get confirmation of Walmart staying above the 62% line, then we have a nice little trading range between $53 – $58.

What stocks are you looking at this winter?

I was perusing through the dozens of financial sites I track every week, and came across this interesting article on Fool.com, What to Do If You Missed the Rally?

While there is nothing really aw-inspiring in the article there are some interesting points that could help the argument, is there really ever a safe time to enter the stock market?

A lot of it started back around the end of 2008 and beginning of 2009 when many of the “professionals” were screaming to sit on the sidelines.

Jim Cramer beseeched us to sell, sell, sell. Shark-jumpers like Ben Stein, who had shrugged off the Fannie Mae (NYSE: FNM) subprime debacle and hustled us into financials like Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC) at the top, suddenly decided that the stock market was rigged against individual investors.

By March, grown men wrung their hands like distressed schoolgirls on CNBC, lamenting the end of capitalism and hailing the dawn of the next depression. Even once-rational financial advisors — folks who are paid to know better — pronounced the death of buy and hold and told us to get “proactive” with our lifesavings.

In short, we got some crappy advice. How else do you lose nearly 60% in Google (Nasdaq: GOOG), one of the great success stories of the past decade? How else does a long-term investor saving for a distant retirement lose more than 60% in Amazon (Nasdaq: AMZN), a stock that subsequently hit all-time highs?

For the record, I apposed sitting on the sidelines around this same time; however, those that listened to these “professionals” ended up losing more money than ever as many stocks went on tear of the next 6 months, which confirmed that the initial selling occurred at the bottom. This is a huge no no when it comes to stock trading.

Now those that have sat on the sidelines essentially missed the rally, missed out on any potential gains, and now what?

What constitutes it is time to get back in the market? What if we wait too long and end up buying at the top of the recent rally? The more we question; the more we can fabricate answers in our minds to make use feel scared.

Now here we are: sitting on cash, singing the blues, waiting for a pullback. But what’s done is done. What matters is what we do now. So let’s talk through our options. We could simply sit tight. After all, exactly one-half of the “experts” you see on TV are convinced we’re due for a massive sell-off.

We could get better prices in a few weeks or months. On the other hand, isn’t this the exact same kind of thinking that got us into this mess to begin with? And even if we do get a pullback, 20 years from now, will we even remember if we caught the precise bottom? I doubt it. I think we have to get in.

The fact is that nobody can really predict what will happen and when. There is no perfect market, and trading requires a certain risk that EVERY TRADER MUST ACCEPT before entering the market. If you’re not game, then find somewhere else to focus your attention because real money is made in places few venture.

Usually the story goes like this… You find a trade and it doesn’t work, so we sell, tweak our strategy, and give it a go with another stock. Unfortunately that trade doesn’t work as well, and we continue the pattern…

Before you know you have lost more money than you expected and you’re still trying to find your trading identity. Eventually you can be forced out of the stock market all together because you have no money to trade.

Here is one simple solution to fix that problem: Go back to virtual trading

While there are obviously no substitutions for “real-time” trading, virtual or “paper” trading is the closest you can come without risking any actual money. Whether you have used it before or not, virtual trading allows us to practice different strategies and trading styles with play or fake money.

You can do research and stock analysis just like normal; however, when time comes to execute orders you will do it through your virtual account. This allows you to find out if a strategy works and not waste precious money on the unknown.

Take risk and venture into places you never have without the stress of real money on the line.

Where can I find virtual accounts?

Depending on your stock brokerage, they may offer some sort of virtual trading platform or you can just sign up for a free account with Wall Street Survivor.

Virtual accounts are also great solutions if you’re looking to venture into new markets such as options or currency trading.

While recent earnings fell short, long-term growth for this stock is expected to outperform industry competitors… oh yeah and the chart doesn’t look too bad either.

Based on the current setup with RSI and MACD looking to curve higher, as long as the stock stays above the 50 day moving average watch out. The current trading zone is between $18-21.

Some of these examples includes stocks that are releasing new products or the related sector is experiencing a boom. There are a lot of different examples, but the key is that all these plays are what I like to call “conditional plays“.

In other words, Stock A should change in price here; given the condition that theory A is met.

As stocks begin to move more and more on perception over factual events, the importance of conditional plays have increased. Especially since you want to be in the stock before the event is realized. Check out 16 more successful trading strategies

We will look at some conditional plays in second, but lets look at a common example first…

The perception around the market is that Company XYZ is set to report great earning numbers after the market closes. The conditional plays is the the stock of Company XYZ should rise if these numbers are indeed good.

Throughout the day leading to the report, stock of Company XYZ increases based on this perception of great numbers. Once the company reports, the numbers weren’t exactly good as analyst thought and… BOOM… the stock heads lower.

As you can see from the example above, conditional plays can be somewhat of a risky move if the conditions are not met. Then again, that is the risk one would assume with this type of play.

Lets look at some conditional plays…

Schlumberger – SLB

As oil has risen from its recent bottoms, so too as Schlumberger (SLB) and I see that continuing well into 2010.

The conditional play here is that as the price of oil increases so will the price Schlumberger. Oil producers will need cost-effective measures to find reserves and Schlumberger should help.

Motorola – MOT

Granted I am high on their new “Droid” phone, the true outcome for this Motorola (MOT) launch won’t be seen until numbers are reported for 4th quarter 2009. Obviously you will miss most of the price change if you wait until numbers are reported.

The conditional play here is that the price should increased off the Droid launch.

Research in Motion – RIMM

Research in Motion (RIMM) has taken a back seat to the likes of the iPhone and Droid entering the smartphone market.

The conditional play here revolves around the outcome of the Droid. If the Droid doesn’t perform well, then that could would help the price of RIMM. On the other hand, if the Droid does do good, then RIMM will head even lower.

What are some conditional plays you are looking at?

Thankfully, I am just one of the many people who seem to be jumping off the RIMM bandwagon, and the charts just don’t seem to be telling anything good about its stock price.

In this short video, we will be looking at a couple price targets. Hint: $40 is not above where the current price sits today.

View video – Research In Motion Ltd. Buyback

Click image to play video

In previous ‘Charting Stocks For Dummies‘ we have looked at charts that have broken out to the positive side, but this time we are going to look at a stock that we predicted to get rejected by the resistance and could have been shorted.

Remember that these case studies are to show you how effect technical analysis can be at predicting stock price movement.

You can see the below and after charts below…

Before

In the original analysis of Crocs (CROX), we saw that the stock had consolidated under the 50 day moving average (blue line). When the stock initially fell below the line, that should have triggered a sell signal, and now the stock was looking to get back in the buy zone by breaching back over the 50 day moving average; however, the combination of the RSI and MACD in bearish territories just didn’t seem that convincing. So I predicted this stock would get rejected.

After

In just the next day, the stock got rejected hard and fell nearly 1.5 points. Both the RSI and MACD dipped even lower. While Crocs in itself is a pathetic company, I wouldn’t recommend this has a long-term trade, but if you are a short-term trader, then we now need the stock to break $6.40 before I could contemplate buying.

So there you have it. A combination of simple indicators and patterns allows us to accurately execute trades only when the stock is ready to move. You can check out more patterns, skills, case-studies, and other technical analysis-focused educational material over at Chart Pattern Manifest.

Basically what Marc and the other people at TradingEmini.com do are conduct live trading rooms and mentoring sessions. While their next mentorship session doesn’t begin until January 11, 2010, TradingEmini.com has been generous enough to offer one week access to their popular trading room, for a limited time.

This deal is only available until November 20th, so if this seems like something your interested, then take advantage of this offer before it expires.

Learn more and sign up here.

By the way, they DO offer a 100% guarantee.

Netflix – NFLX

A nice flag has developed here and it even seems like the stock has already broken out. Netflix (NFLX) just keeps on rising.. especially when the economy is sucking.

Click to enlarge image

AK Steel – AKS

AK Steel (AKS) has definitely taken a little bit of a beating during the recent down run we have experienced, and now we are at a crucial point. We have confirmed the first bounce of the 200 day moving average support, but now it looks like we might get another shot at it. As long as it stays above the red line, consider it a buy.

Click to enlarge image

Crocs – CROX

Hard to believe Crocs (CROX) was once in the 70’s, now it will be a miracle if it can get above $10. I have to believe the 50 day moving average resistance will knock this stock back down. Keep watching.

Click to enlarge image