MORE Penny Stock Trading Advice I Give My Friends
MORE Penny Stock Trading Advice For You
So last time I wrote about my friend Briana M. who asked for some advice on trading penny stocks.
You can see that article right here: My Penny Stock Trading Advice for You
So I told her about keeping her money safe.
I explained why you should never trust a stock tip from anyone (a friend, a family member, or even a stock guru).
And I told her how profitable trading stocks could be
The example I used was my 700% + gain trading Primedia.
And we were about to jump into the next logical question how do we find more profitable penny stocks like that?!?
The answer is simple youve got to look at:
- the financials,
- the management team,
- the stock
- and learn to avoid the scams!
So lets jump in
My Penny Stock Trading Advice Look at the Financials
For me, before I buy any penny stock, I start with research and the first stop for the research train is the company financial statements.
Start by looking up the company filings at the SEC.gov website
Cant find the filings thats a red flag.
Find the filings, but they are woefully out of date another red flag.
(By the way, I hope you dont need me to tell you Red Flags are bad!)
Once you find a company with filings that are current, flip to the income statement
No or little revenue another red flag
Are they losing money another red flag
Hows the balance sheet?
Zero or almost zero cash . Red flag
Lots of liabilities and debts red flag
Negative shareholders equity another red flag.
By the way, I pitch a penny stock to the waste bin if it has two or three red flags and some red flags are bigger than others!
This review alone will help you sidestep many (but not all) of the scams that unscrupulous traders and Pump & Dump artists are trying to pull.
Once you find a great penny stock with decent financials, you want to start looking at trends revenue trending down – RED Flag earnings falling – RED FLAG Cash disappearing Red Flag.
Ok that should only take about 20 or 30 hours of research to find one company to go to the next level.
Remember, trading penny stocks is simple but not easy and youve got to put in the time.
Once the financials look good, shift your focus to the management team
My Penny Stock Trading Advice Look at the Management Team
In the company filings, and probably on their website, youll see the management team bios read them all.
Google the people see if they are reputable and upstanding.
Have they been running small companies before? Do they have a track record of success? Is the team new or have they been at it for a while?
Then look at the ownership statements
These are known as form 4 filings and it will tell you how much the management and directors own in a company and it will also tell you if they are buying or selling stock.
Management selling stock is a HUGE Red Flag.
Finally, look at the press releases the management team is putting out. If you see a ton of press releases all bunched together that could be a red flag. Are the press releases about important events or do they seem to be trivial another potential red flag.
Or does management just NOT put out press releases not good or bad but important to know!
If the management team doesnt pass these tests start all over.
If they look decent or at least dont scare the crap out of you now you look at the stock.
My Penny Stock Trading Advice Look At The Stock
When you look at the stock, start with the chart.
Is there a long-term trend higher thats good.
Or does the stock bounce around like a 2 year old main-lining sugar thats not always bad.
Do you see unusual spikes in volume and price historically followed by a collapse in price? Thats a huge red flag. It could be a sign of manipulation
If the stock is moving freely and doesnt look like its being manipulated, you can then look at some basic metrics
How does the stock compare to others in the industry? Is the P/E too high or too low? Whats the Book Value like? Is the Price to Book out of whack?
Does the stock pay a dividend? (Thats a great sign.) Is the dividend inconsistent? (Thats a bad sign.)
How many shares are outstanding? A few million thats ok a few hundred million or a billion or more that means management has no idea what theyre doing. Its a red flag.
After all this research and after all this study if you find a stock that looks solid then and only then should you
Dive in and do your diligence on the company, the products, the customers, the business model, the technology, the patents and the long term industry macro trends.
With that research under your belt, you should be able to pick out some great little penny stock trades
But theres one last thing to watch for the scams.
My Penny Stock Trading Advice Avoid The Scams!
Often times the scams are the easiest threats to detect However, sometimes it can be hard to realize youre caught up in one
For example, if you get an email touting a stock look to see what the disclaimers say in the email Were people paid money to tout the stock Do they own the stock? Are they planning on trading the stock while they advertise it?
All of these things are legal to do but only if disclosed
And if you see them disclosed they are GLOWING red flags!
But, what about a hot tip from your broker or brother-in-law?
Dont ask them if they invested that doesnt tell you anything about the company. Remember nothing says they cant lose money too you know the saying, A fool and his money are soon parted.
Ask your friendly tipster where they got the idea
A lot of times its from an email sent by a stock pump & dump scammer!
Another thing you can do to protect yourself is avoid any hot tip that says youve got to invest right now!
Remember, my Primedia trade was a huge winner, but it took time it was months and years before that trade reached its maximum value. So if anyone tells you to invest right away you should be very, very cautious!
I hope that helps you better understand how to trade penny stocks
Profitably Yours,
Penny Stock Research
Category: Investing in Penny Stocks, Penny Stock Tips
