Can You Make Money with Penny Stocks? -- with David Moadel
Hello
hey everybody and welcome to looking at the markets with David Modell penny
stocks can be really exciting but they can also be really dangerous if you
don't know what you're doing you want to have a plan you know plan
your trade and trade your plan as they say and that's a pretty good saying
especially with penny stocks because yes they're cheap but they're also volatile
they're risky they make big moves to the upside sure that's the fantasy right
that you'll make a hundred percent returns in a day or a week or something
like that but you can also lose 100 percent of your investment very quickly
with penny stocks so please be aware of that so there are certain things that
you want to look for and this is not a complete or comprehensive list but just
a few starter pointers for you for one thing you want to look at the volume you
want to make sure that there are enough shares available to buy and sell at a
good price because first of all when there are not a lot of shares traded
like on any given trading day if there's let's say only a dozen shares traded or
maybe 20 shares traded or even 50 something like that that's not very many
and what's gonna happen is the bid-ask spread you know the difference between
the bid price and the ask price it's probably going to be very wide and so
you're gonna get ripped off a little bit when you buy it and then ripped off a
little bit again when you sell it and when I say a little bit maybe not a
little bit you might get ripped off a lot both ways okay so you'll already be
at a huge disadvantage so if the volume of the trading volume is very low then
you might not even want to touch it as far as a particular penny stock also
you want to look at the charts it might be a penny stock for a reason like for
example if the stock used to be over a hundred dollars a share or even more
than $50 a share and then it went down and down and down and now it's a penny
stock well that's telling you something I mean I know it's cheap but if
something just keeps going down and down and down over the long term month
after month year after year that could be this could be red flag could be a
sign of a company that's really in trouble all right and so that's not
buying a dip that's catching a falling knife as they say I like buying dips and
all in great companies that have a tendency to recover from dips time and
time and again but if the chart is if the long-term chart I'm talking about is
just consistently downwards that's not good so pull back the chart don't just
look at the you know the the one day chart or the one week chart you can look
at those that's fine but it also pull back the chart look at the overall trend
and make sure that it's not a falling knife as they say all right because
there's usually a good reason why it's so cheap in that case
now not all penny stocks are bad and they're not all bad companies I mean
take Hekla mining Hekla mining ticker symbol HL technically that's a penny
stock because the SEC Securities and Exchange Commission defines a stock
under five dollars per share as a penny stock right penny stock even though it's
not really a penny but you know Hekla mining is an example of a what i think
is a pretty good company they've been around for a long time and it's a mining
company and you know it's just because it's under five dollars a share that
doesn't make it a bad company at all necessarily I mean you have to make your
own decision on any particular company whether it's good or not and so of
course you're doing your research doing your due diligence other things to think
about we talked about the volume I mean volume is also important because the
volume can be very very thin especially if a penny stock is going down fast all
right you might not even be able to find somebody to buy your shares I mean
that's pretty scary you you pay money for stock shares of a penny stock and
then if the thing tanks if it goes down fast there will be probably sellers
probably a lot of seller probably a lot of sellers people are
dumping their shares pan selling as they say but then you if you
want to sell your shares you might not even be able to find somebody willing to
buy them when there's panic selling going on and so just another reason to
look at the volume make sure it's sufficient make sure that your broker
has the ability to locate buyers and sellers you want to have a good broker a
broker perhaps that specializes in or at least is good with penny stocks make
sure that your broker is a good reputation with buying and selling penny
stocks on your behalf when you give them an order to buy or sell make sure they
can execute or fill that order quickly and that they can find shares and find
buyers and sellers of that penny stock another thing to think about some people
want a short or short sale penny stocks I think that's a dangerous idea I do not
recommend it for most people because when you short sell a penny stock I mean
yes a penny stock can go down a hundred percent but it can go up a hundred
percent in fact it can go up more than a hundred percent the most that a stock
can go down percentage-wise is a hundred percent can't go down more than a
hundred percent but it can go up more than hundred percent if the stock
doubles then it's up to hundred percent if a trip if it triples it's up three
hundred percent okay so you can you can actually end up owing your broker more
money than you have in your account okay you can lose a lot of money including
money you don't even have so short selling penny stocks I don't recommend
it for most people so if you're thinking about doing it
be very careful or better yet just you don't have to do it at all all right
other considerations with penny stocks you want to see if the stock has a
history okay if the stock if the company hasn't been around long enough to even
have a history I mean you want to be able to have a chart where you can see
how it's performed month after month or better yet year after year you want to
know that this company is here to stay a lot of penny stocks represent startups
and a lot of startups fail I'm not saying you have to reject a
company because it's new you know there are exceptions to every rule okay but
please be careful I mean look at what happened to people if you want an
example of a start-up and this is not a penny stock but you know look at the
look at the charts of you know uber you know lyft companies like that you know a
lot of people bought right after the IPO of those startup companies and you know
they peaked very quickly and then they went down they went down hard and so you
know the new companies can be risky there's a there's risk involved there
compared to a stock that's in a company that's been around for a long time and
has a history all right and there are fairly inexpensive stocks out there look
at Ford ticker symbol F okay Ford stock is not super expensive it's not a penny
stock but it's not extremely expensive or like I suck I said Hecla mining you
know I think it's a pretty good company and the shares are you know just because
a company is good doesn't mean it's cheap and just because a company is
expensive doesn't mean it's good okay I know that's a mouthful there it's a lot
to a lot to take in but hopefully these tips will be helpful to you and with
penny stocks you know if you're using stop losses which is probably a good
idea with penny stocks most of the time respect your stop losses don't just
guess and go don't just hope for the best because hope is not a real strategy
for traders and investors so whatever safety rules you have you have to
enforce them even more with penny stocks so like with macdonald stock Disney
stock something that moves slowly you want to have your safety rules in place
sure but with something that moves quickly
like most penny stocks do whatever safety rules you have you really want to
watch those safety rules even more closely and enforce them even more
because again they're gonna be movers probably
alright so you got to watch it more often and if you use stop losses really
respect those stops okay and know what your profit target is ahead of time
because you know if something can turn around at any moment and you didn't take
your profit then your profit can quickly turn into a loss all right I hope these
we're helpful to you and you don't have to trade penny stocks at all by the way
if all this sounds kind of scary to you and you'd rather just stick with safer
stocks that's okay too all right there's nothing wrong with
that making money slowly is perfectly fine because through the power of
compounding and reinvesting you can actually make pretty good money over
time all right so if you want some help putting together a plan for your trading
or investing I do offer coaching you can email me for the coaching at David
Modell at gmail.com hey thanks for watching and listening I'll talk to you
again soon
- babe
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