Top Penny Stocks – The Best Penny Stocks Are Not Always Best For You – Part 2 Of 2

Traders Only

If you are a trader, you will need to have different criteria when you determine your top stock picks than a penny stock investor. You, as a trader, are normally not interested in the long haul. You want something that will move NOW, not over the next 5 to 10 years.

The way you do that is to identify which companies are about to move up. To be honest, it is my personal opinion that you are not at all interested in identifying the best penny stocks like an investor is but only that the company isn’t about to file or is in bankruptcy. Also, you need to avoid fraudulent situations.

The way a stock moves is what attracts a trader. Traders usually have short-term psychology. I’m a trader. I rarely invest in anything. I want to be in and out quickly and make my money in at most a day or two. I really like penny stocks because they don’t expire like options so if I get trapped in a position, at least some day, I may be able to get my money out. Additionally, I can operate successfully with less than $1,000 USD in penny stocks.

It is the nature of penny stocks that when the move, they move in a very violent, predictable pattern. That pattern is that they will move up sharply, very quickly. Often the move will occur in a matter of hours and the stock’s price will fall rapidly after that has happened. You are “event driven” and you exist in a stock momentum world. Want to know more about how it actually works, see my article “Trading Top Penny Stocks – The Rules Of The Road,” for more information.

Here is a very major question for the Trader to ask about a trade: “Will the penny stock company still be in business this afternoon or the day after tomorrow when I expect to sell my position.” If the answer is “No” or “I don’t know,” don’t do the trade.
Here are 5 other rules that traders can use to determine whether they want to do a trade:

1. Is the company in bankruptcy or about to file for bankruptcy? If so, don’t do the trade.
2. Are the company’s financials (balance sheet and P&L) readily available? If not, look at the trade with “jaundiced eye” as William Shakespeare might have said. It may be a fraud of some type or a pump and dump operation. If a possible fraud, walk away from the trade; don’t do it. See my comments on “pump and dump” below.
3. Is a major alert service like Penny Stock Prophet recommending the stock? Although I have seen companies that should know better promoting issues that I think are schemes or at best bad recommendations, most of the time they are on the up and up.

   Usually, in my opinion, if a major alert service is pushing an issue there will be strong demand the next trading day and the stock will “Pop.”

   Sometimes very significantly like 20% to 40% or more on the open or shortly thereafter.

   If I think that that is going to happen, I am prepared to get in fast and get out even faster!!!

   After a position I’m in pops (I do options also and they work amazingly similar to penny stocks), I watch the momentum very carefully. When the momentum begins to drop off (not after it goes negative) I want to get out.

   When a penny stock drops after an unusually high volume it will often return to its previous levels or below. And, not only will it be fast but if your order hasn’t been executed by the time it starts to crash it may never execute at a profitable price. I watch not just price momentum but also the rate of volume change.

4. Make sure that there is an event that just became public knowledge that will attract traders and investors. If you are a “long” it must be a positive event such as a major contract or a significantly improved financial situation such as a very significant line of credit or a big improvement in quarterly or other financial results.
5. Make sure you are comfortable with the position. I can’t tell you how often my “tummy”, i.e. my intuition has kept me out of a position. has warned me about bad trades. There have been many times when I have ignored my “tummy” and I paid the price, always in “coin of the realm,” which, in my case, are US Dollars.

A Word About Pump And Dump

Pump and Dump operations are frauds that are perpetrated by unscrupulous promotes who hype poor quality or non-existent companies. Everyone piles on the issue and the pump and dump promoter sells before everyone else. Hence the name. Usually the promoter then vanishes with the money that was made from the scheme.

Most pump and dump possibilities are what I call “False Pump and Dump.” They are simply weak companies that someone is promoting/hyping. “False” pump and dumps create an opportunity for traders if they are willing to assume the risk that they will be caught in the crash.

I do not intentionally trade any potential pump and dump situation. If you do so, you do so at your own risk! Do not accuse me of recommending that you do it.

I’ve written a bit on pump and dumps in my article entitled “How To Use Penny Stock Prophet To Make More Money – Part 3 Of 3.”

A Final Word About Picking Top Penny Stocks

It is very important that you recognize your natural stock “trading/investing” style. That type of stocks that you will want to buy is entirely different depending upon what type of investor/ trader you are. All security trades involve risk and the possibility exists that you can lose all of your money as a result of buying and selling stocks. How much risk you are willing to accept is determined by your style.
If you are naturally an investor I think you should only get into the best penny stocks… If you are naturally a trader, I believe that you should always look for the top penny stocks.