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 to 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?
- will it bounce?
- does it have news?
- 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?
- will it bounce?
- 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?
- is it uptrending/downtrending?
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.