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| Screening 101 |
There are ton's more penny stocks than listed stocks and an even smaller percentage of them are legitimate. This makes finding a solid over the counter issue the equivalent to finding a needle in a haystack. When trading these issues over a short term time horizon is it worth the time and effort to weed out the scams and shell companies, or should we focus more on technical analysis? The answer is both, but don't spend all of your time sifting through 100,000 or more companies, unless you are looking for the next Microsoft and plan to hold on for ten years or more. Even if you pick ten stocks that you think will break out of the basement and get listed over the next few years, nine of them will probably be worthless, and one will have doubled or tripled, leaving you with a lot less money than you started with. We feel that by screening these stocks for tradability, volatility and activity, we can then use this smaller list to find tradable companies that have good short and long term prospects. We control risk by diversifying our portfolio and by constantly taking money out of our profitable trades and adding it to our unprofitable ones. When looking at penny stocks, all of the usual parameters that you may be familiar with in the listed world need to be thrown out the window. The definition of a penny stock can be interpreted to mean any variety of things. Most new investors simply look at price per share when deciding if they are looking at a penny stock and have there own price requirements. Securities regulators use price per share as only one factor out of many when determining a companies penny stock worthiness. The also look at whether or not the stock is listed, what the market cap is, if they are involved in an established business and are their net tangible assets less than or greater than five million dollars. Including all of these elements will help us determine what kind of investment we are dealing with and what kind of goals we should have. Many companies that have an established business and large assets may be trading for pennies a share because they are extremely undervalued, or they may be on the verge of destruction. New and emerging companies that trade under a few dollars may be considered pure penny stocks, but are they good long term prospects, or just a flash in the pan. Knowing as much as possible about the business's in which these companies are engaged will help you answer these questions. We screen all stocks for price first, then sort out the true penny stocks. Although we don't agree with the governments definition of a penny stock, we do include all of the same factors when trying to find a short term trading opportunity. |
Sheet markets. There are only a handful of NASDAQ and AMEX stocks that trade under a buck. Although we normally do not trade these issues, it's important to get a feel for how they stack up against our unlisted securities. We look more closely at pink sheets because there is such little information available but we watch them because there are many popular fallen hero's that soak up a good percentage of trades per day. There are hardly ever any NYSE stocks under a dollar and when there is one it is important to watch it to see what happens. The main advantage besides the lack of ECN's to trading OTC BB stocks is that they are in little or no danger of being delisted. You don't have to worry about which stock will get an extension to the NASDAQ minimum bid price and who will and won't get favorable treatment. Some of these stocks can be good companies but just a hint of delisting can send them into a downward spiral with no hope of returning. Meanwhile there are thousands of penny stocks on the OTC BB, some of which are better companies than their NASDAQ rivals. With so many stocks available for us to trade on the OTC BB we must be careful to look only at ones that have similar trades per day and volume than listed stocks. It's easy to see that OTC BB stocks that have had nice run ups started out with one little spike and heavy volume, settled off a bit and then later picked up more and more momentum. One must realize, however that there are twice as many issues that spike up and add volume for the first time and then return to the doldrums for months or years. We feel the only way to avoid this is to have a good perspective on where all of the penny stock traders are, where they have been and where they may be going. We may watch a couple thousand stocks, but there's only a few hundred that we will consider trading. |
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| Screening 101: |
A Message From The SEC What Every Investor Should Know Important Information On Penny Stocks "Penny Stocks Daily", "Penny Stocks Weekly", "PSD" and "PSD 10" are Trademarks of Penny Stocks Daily. |
