What Makes a Best Penny Stocks Trader Successful?

I have long held that the best penny stocks are the penny stocks that are about to move up.  This means that they are the hot penny stocks of the day.

Notice that I said “day.”  This is because the best penny stock will have moves that last, at most, 2 or 3 days.  In fact, it is not uncommon for a penny stock to execute its entire move… up and back down… in a few hours or less.

I firmly believe that the only companies that the penny stock trader should ever consider buying into are the companies whose stocks that are “pregnant” with a move up.   There are 3 things that I think you should look for to find “pregnant” companies.

First, there must be a company fundamentals change.  The company that you have your eye on must have a reason to move.  The best penny stocks traders develop a sense for what will make a penny stock move.

As a general starting point, the best penny stocks become poised to move up because of 4 things (note that there are others but this is a good starting point to use to begin developing an “ear” for successfully predicting penny stock moves):

1. The financial position of the company improves significantly.  Significant is a good quarter with more on the way, making a profit after a string of losses and/or the settlement of a lawsuit in the company’s favor with no appeal.
2. There is a major contract in the works.  It must be a really significant contract with positive effect on the future of the company and its bottom line.  A major word of warning here, the company must have enough cash plus credit to be able to deliver on the contract.  If you find out that they don’t… watch out because there is just as much chance that there will be a non-performance lawsuit as a stock price increase.
3. There has been an acquisition of a line of credit sufficient to cover the performance under a new contract or to make the company more competitive.  If possible, determine whether management actually intends to use the line of credit for the stated purpose.
4. An executive with a track record in the industry has been hired or retained as a consultant.  This is one that you need to watch out on.  They may be bringing in a “big gun” to deal with a major problem that existing management hasn’t got a clue about what to do and the public may not be aware of the problem’s existence.  If there is not an obvious reason for the hiring of the executive, be on your guard… Especially if the company is chronically short of cash.

Second, when something is in the works, there will often be an increase in the company’s stock marketing activity.  Often, a recommendation service that has a strong following like the Penny Stock Prophet will be retained to provide publicity for the stock.  I consider this to be a major, major alert that something is up with the company’s stock.

Again, a word of warning is appropriate here.  A company marketing their stock without a major change in their fundamentals is something to avoid because there will be nothing to fuel much more than what I call a “hype pop.”

And, to make it worse, they may be doing it in order to increase their stock price and so increase their ability to collateralize more debt or obtain a lower interest rate.  Neither of these is a good thing for them or a microcap trader/investor.  I think that it means the company is having a hard time trying to get by and are attempting to “borrow their way out of debt.”

When there is a marketing blitz from more one recommendation service it usually means that the company has something in the works, or they are going to the public for a new round of financing by issuing more stock.

When that happens, the first thing that I want to ask myself is why?  I think that you should too.

Finally, the company has invented a new product, acquired rights to use a major patent or perhaps in the case of a gold or oil exploration firm, the company has obtained rights to prospect in a new, very promising tract of land.

In a way this third item is a kind of fundamentals change but I think that it needs to be treated separately.

In many smaller companies, a major product or the rights to a tract of land that can provide whatever they sell is a big thing.  While I personally don’t advocate investing for the long-term in penny stock sized companies, it is more of a personal focus type thing.

My thing is speculation.  I am a trader and I always “catch my lunch” when I try getting in something for the long haul.

Investment bankers make small and sometimes very large fortunes picking promising small companies.

They can do it and I believe that many of my readers have what it takes to make a lot of money investing as opposed to trading in the stocks of very small companies.

So what do the successful  best penny stock traders do the be successful?

Simple…

… They adhere to the above guidelines.

Are you interested in getting your research done for you and having the “figuring out what’s going to move” done for you?  If you do, give Penny Stock Prophet a try.

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Plus, if you join Penny Stock Prophet today through one of my links, I’ll throw in my Penny Stock Prophet Bonus Package for free when you send me a copy of your ClickBank sales receipt.

Go, make a fortune,

Al

P.S.  Thanks for reading “What Makes a Best Penny Stocks Trader Successful.”

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