Strategy Part I: How I’ve started choosing my stocks

Over the past 4 months, I’ve started learning the ways of penny stocking by joining the Timothy Sykes challenge; I have learned a lot and for the last couple of weeks I’ve been coming to the realization that successful pennystocking traders develop their own ways of researching possible plays, entering/exiting and managing risk.

So here is the method I developed┬áto pick my stocks as potential plays. As of yet, I have not figured out a proper way to rate these plays other than my own gut feeling, which is not very scientific, and therefore not idea, but until I figure out a proper (more scientific) way, I’ll stick to that.

Basic Filters

This section goes over the very basic filters that I use to choose whether or not I will play a stock. Failing these filters will automatically drop the stock out of my list.

  • Price: between $0.015 and $5.00 ideally, under $7.00 acceptable, anything above is out
  • Volume: at least 100000 shares, acceptable down to 50k depending on the context
  • Trades: at least 200 trades on the day
  • Market: OTC for Pumps and dumps mostly, ideally NASDAQ/NYSE for everything else, all are acceptable

The questions

Below are the questions that I ask myself when scanning for potential plays. I use these questions as a baseline to help me define exactly why a stock should or shouldn’t be on my list. I’ll work on developing a point system in order to categorize plays in terms of tradability and assign a rating to each of my picks defining which are the good plays and which are not worth my time.

  • Does the stock chart matches a known pattern (see Timothy Sykes’ Pennystocking and Pennystocking Part Deux DVDs)?
    • which pattern?
    • is it tradable?
      • why?
  • Does the stock have a catalyst?
    • does it have news?
      • Good or bad?
    • is it an earnings winner?
    • did it have a contract?
    • when was this catalyst announced?
    • who is talking about it?
      • how are people responding?
      • is it a hype?
    • is this the initial run/pre-run?
    • is it a dip?
      • will it bounce?
        • why?
  • Is the stock price overextended?
    • why?
    • how long?
    • by how much?
  • Is the stock a Pump and Dump?
    • is it being promoted?
    • who is promoting it?
      • what is their track record?
      • how long do their promotions last?
    • what is the stage of the promotion?
      • is it an early pump/pre-pump?
      • is already multi-day run?
      • is it a dip?
        • will it bounce?
          • why?
      • is it about to dump?
        • why?
    • what are the chances of it crashing?
      • when?
      • why?
    • what is the total gain since the start of the promotion?
  • Is the stock showing price action movement?
    • is it uptrending/downtrending?
      • why?
      • for how long?
      • by how much?
      • what are the odds of it running up/down?
        • why?

That’s it for now. These questions may evolve over time and I may add or remove some. I’ll also probably make a flowchart from it showing how they fit into potential buys or potential shorts based on the questions.

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