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How to Trade Penny Stocks For Beginners: Class 1 of 4 by Ross Cameron

what's up everybody all right so today

we're going to talk about day trading

terminology and the term of the day is

penny stocks and how to make a living

trading penny stocks now this is a

question that a lot of traders asked me

when I first started trading I

gravitated towards penny stocks and why

would that be it's because I didn't have

a lot of money and I didn't think I

could afford to buy stocks like Apple

Microsoft you know Caterpillar and I

also figured that if I was trading

stocks like that you know most mutual

funds they only make five maybe ten

percent in a single year so trading a

stock like Apple you know with a $5,000

account 10 percent is 500 bucks

I'm not going to spend all my time to

make 500 dollars in a single year I need

to be making 500 dollars a day so that

meant that I needed to focus on an area

of the market that was a lot more

volatile and that I thought had more

potential and so I thought penny stocks

you hear about people who have traded

penny stocks and made hundreds of

thousands of dollars and so I thought

maybe that was the place to go well I

didn't realize when I first got started

how long it would take me before I would

find any success as a trader took me 18

months of trial and error and I lost

over $30,000 during that time in my life

it was very frustrating I kept losing

and losing and losing in fact only 10

percent of the traders out there who try

to trade the markets will be profitable

so you know for me at this point I've

now gotten over that learning curve and

so what I'm going to talk about today

are a couple of the different tiers of

penny stocks and how you configure which

ones are higher risk and which ones are

lower risk

so why should you listen to me well I'm

a trader who in the last 12 months has

made over two hundred and twenty

thousand dollars trading stocks and a

lot of those stocks were penny stocks in

fact during the summer of 2016

I made ninety four thousand one hundred

and nineteen dollars trading stocks and

many of them again were penny stocks at

the end of the summer I did an interview

in that interview appeared on The

Huffington Post you can see I verified

all of these trades with my broker

statements to show you that the trades

are real and the gains are real that

article here on The Huffington Post you

know was about the three

that I spent trading the markets this

for me was a you know a great stretch it

was a really great hot streak and really

all of this is to say that I am someone

who trades the market profitably and I

figured out a way to make a living

trading stocks and many of the stocks I

trade are penny stocks all right so the

most important thing for you to

understand is how to differentiate the

high risk penny stocks from the low risk

penny stocks and of course all of this

is relative day trading is riskier than

long-term investments but a lot of us

come into the market knowing that

there's more risk and and looking for

that you know risk to reward potential

I'm willing to risk money to make money

and this year I've done really well

alright so what are penny stocks well

the SEC considers penny stocks to be any

stock trading under three dollars per

share and that's why a lot of the stocks

I trade would be considered penny stocks

because they're between a dollar fifty

and three dollars I personally focus on

trading stocks between a dollar fifty

and ten dollars so that means some of

the stocks I trade technically are penny

stocks even though they're not penny

stocks in the literal sense in the

literal sense a penny stock of course

would be a stock trading below one

dollar and these are generally some of

the riskiest stocks to trade in the last

12 months the 220,000 dollars I've made

has come not from stocks trading at 10

cents 20 cents but from stocks trading

between $1 and 10 dollars and many of

those would be considered penny stocks

all right now we'll talk a little bit

about the different exchanges that penny

stocks trade on some of them trade on

NYSC Amex and Nasdaq exchanges but most

of them don't all right the National

exchanges require all stocks to trade

over $1 now if a stock falls below $1

for a period of time that's fine they'll

get a notice saying you gotta get your

stock back up above $1 and if they can

then they continue to trade on that

exchange if they can't well then they

risk getting delisted so let's take a

look at some of the stocks that I've

traded over the last few months this is

a stock AVO that went from $1 80 up to 3

dollars and 60 cents in one day versus

the previous day's close this went up

over

a hundred percent and this right here

was a listed stock this is on the

National exchange this was easy to trade

lots of liquidity millions of shares of

volume easy to buy easy to sell and

there are traders who easily made tens

of thousands of dollars trading the

stock on this particular day we trade

the simple patterns the first pullback

right here the second pullback right

here here's another stock again from a

dollar ten to two dollars in one day a

100% intraday move so this is to say to

find big percentage gains you don't need

to look at penny stocks in the

traditional sense of being under a

dollar you can get big percentage gains

from stocks trading between one and ten

dollars all right and again the entries

here are very simple the first pullback

and the second pullback here's another

stock from four dollars up to six

dollars and 20 cents right off of our

high o day scanners we use these

scanners to search the market for stocks

that are moving up quickly and whenever

I see that I look for an entry this

entry here was at 4:50 at right after

that little red candle the first candle

to make a new high o is my entry and

we've got the move all the way up

towards 620 again an opportunity to make

easily tens of thousands of dollars and

if you find a couple trades like this

each week you're going to do really

really well

here's another stock from about 340 up

to 433 clean flat top break out over $4

and then first pullback here from 418 up

to 433 simple patterns we teach these

patterns and trade them every single day

in the chat room here's another stock

from a dollar 40 up to 308 a 100%

intraday move this for me represents an

opportunity right the only question is

whether or not you have the skill to

capitalize on this type of opportunity

when it presents itself we see stocks

make these kind of moves day in and day

out here's a stock that went from two

dollars to six dollars and 80 cents in

one day look at that I mean that's an

incredible opportunity and these entries

are not that hard

the first pullback and the second

pullback there's four thousand three

hundred and ninety dollars in profit in

one day that right there is more than

most Vermonters make an entire month so

to be able to do that in one day and

really

in just the period of about an hours is

pretty impressive that's the potential

of the market that for me is the

potential of trading small cap stocks

this is a penny stock in the definition

you know buy based on the SEC definition

it's started below three dollars and

look at the move it made this is a stock

that I felt comfortable trading with

large size this is not a company that's

you know pending bankruptcy or trading

it you know one or two cents per share

stocks that are trading at one or two

cents per share generally speaking are

some of the worst companies on the

market if they were good companies they

wouldn't be trading at such a low price

here's another one moved from two

dollars up to nine dollars in one day

right that's pretty crazy

we asked some of the traders in our chat

room whether or not they were profitable

on this trade my entry was at 250 and 86

percent said yes you can see here that

the first move up entry at 250 pullback

here another entry over $4 for the move

up into $9 per share so these are these

are trades where you could go in with

10,000 20,000 30,000 shares and some of

the most talented traders will easily

make hundreds of thousands of dollars in

these types of moves and they only need

to do that a couple times a year to be

very very successful

here's another stock this is a little

more expensive from $12 up to $19 all

right so this is to say that we see

these opportunities all the time in the

market and the biggest thing I want to

encourage you is to you know just to let

go of that thought to trade profitably

you need to trade literal penny stocks

you don't need to trade stocks priced it

you know one to three cents per share in

order to make money trading the markets

now penny stocks this is an important

thing the minimum tick rule will affect

penny stocks so stocks that trade over

$1 trade in one penny increments and you

can see here this is a stock that'll

trade I mean it has a bigger spread

right now but it can trade in increments

as small as one penny so it could be a

381 by 382 or something like that

well when stocks trade under $1 they

trade in four they've got four decimals

though so they trade in one hundredths

of a penny which is

pretty crazy all right so that means an

80 cent stock might look like this point

eight one nine nine this $0.26 stock is

26 by twenty six to seven all right so

this further breaks down the penny

stocks and this is for the simple reason

that you know if you had a a penny stock

trading in a one penny spread the spread

would become a very large percent right

a stock trading one cent by two cent has

I can go up a hundred percent just as

soon as it goes up one tick so this

creates a little bit more market depth

it allows for more buyers to line up in

between each penny in fact it allows a

hundred places for them to line up in

between each penny now I prefer

obviously to trade stocks above one

dollar so the stocks that I'm trading

they all have your typical 1 cent spread

in 2001 the market underwent

decimalisation and before that stocks

traded in fractions so when we had

decimalisation that really changed the

market a lot because instead of having a

minimum spread of six point two five

cents the smallest spread went down to

just one penny right so when you had

spreads of a quarter you had twenty five

cent spreads you had spreads of 1/8

there was a 12 point 5 cent spread you

have trade you have spread of 1/16 it's

a six point two five cent spread all

right so now the spreads are much

tighter and that means that buyers and

sellers can get stacked up on both sides

and you can see here it would actually

take a lot for this to move all the way

to 27 cents because of all the sellers

that are lined up in the 100 places

between 26 and 27 so for that reason I

actually don't feel that most of these

penny stocks will move as quickly as

stocks like this priced above a dollar

these will move faster look at this can

move from 81 3 81 to 386 almost

instantly right it would take a very

very long time for this to move 5 cents

now there are a couple different

exchanges where penny stocks will trade

yes

some penny stocks are on NYSC and Nasdaq

these are

docks that have fallen below $1 per

share you know there is the requirement

that all of the stocks on the NYC and

Nasdaq trade above $1 per share but if

the company's shares fall below $1 for a

period of time and then come back up

above it you know it's it that mean

nothing might happen it might just be

fine

but if the company stays below $1 for a

long enough period of time they can

receive a delisting notice from the

exchange and what they're saying is that

if your stock isn't above $1 by this

date you're your company's going to be

pulled off the exchange you're going to

get delisted and you're going to be

moving to the OTC exchange that's really

the opposite of growth it's not a good

thing for the company they don't want to

get delisted so there are a couple

different things they can do they can

try to perform well and have the stock

get priced above $1 if that doesn't work

well they can do a reverse split a good

old reverse split and we see this all

the time with small cap stocks this is a

this is one that's been particularly

ridiculous GBS n with all the reverse

splits it would actually be priced up

here at 43,000 dollars per share at the

high of the spike but you know what when

it and right now it's trading it one

penny it keeps dropping down and they

keep doing a reverse split so how does

that work well if a stock is trading at

50 cents and they do a ten to one

reverse split let's say you're holding

10,000 shares at 50 cents they're going

to take that 10,000 shares and they're

going to turn it into a thousand shares

priced at five dollars okay so all of a

sudden your 10,000 shares turned into a

thousand and you're holding the stock

now at five dollars

so in effect nothing really happens it's

the price hasn't really changed it's

just changing the outstanding shares and

adjusting the price right shareholders

value hasn't changed but the price the

stock has changed to keep it above the

$1 minimum and to keep it in compliance

of course if the stock then goes from

five dollars back down to a penny they

got to do a reverse split again and they

do that again and again and again and

that's why you end up seeing stock

charts like this that just keep going

lower and lower and lower and lower all

right now eventually this stock may not

be able to do another reverse

split and they may get delisted all

right and they will probably move to the

OTC market so once the stock has been

Dilys delisted it will move to the OTC

market although oftentimes

stocks will list on the OTC market and

never appear on national exchanges like

NYSC or Nasdaq because they don't they

can't meet the requirements

all right the requirements to be on

either of those exchanges are really

high they have to be fully transparent

they have to show their earnings the

accounting and all of that stuff but

with the OTC market

well regulations are you know there's

still some regulations but the

requirements to get listed are a lot

lower now in recent years the OTC market

has changed a lot especially in the

quoting system it's made the electronic

quotes available on most stocks so

liquidity has improved but in the past

liquidity and order execution times were

very slow compared to NYSC or Nasdaq so

you know the OTC exchanges may have a

combination of electronically quoted

exchanges but also broker-dealer

networks that aren't even listed so as a

result you know the OTC markets are not

as transparent for traders or investors

and that means the risk has increased

the risk is going up all right now there

are several tiers of the OTC market and

those tiers help traders understand the

type of stock they're trading now these

tiers separate the companies that are

you know not great to the ones that are

like really bad when it comes to

providing disclosures providing earning

statements and meeting the the

requirements to be listed these are the

three tiers of the OTC Markets you've

got the OTC QX which is the best market

then you have the oTCQB which is the

venture market that's the so-so and then

you've got the Pink Sheets right the OTC

pink and these are the rest of the

stocks they don't meet the otcqx and

they don't meet the oTCQB standards and

they're also subdivided into categories

of

kind of like crappiness I mean some of

them are really really bad and this is

where a lot of stocks become subject to

manipulation if someone wanted to

manipulate the market they would most

likely use an OTC stock all right and

we'll talk about that more in a little

bit now the important thing to

understand is that the OTC QX the best

market this is the sort of the highest

quality of OTC stocks they do have to

meet pretty high financial standards

they have to follow best practices they

have to maintain compliance with you

know securities laws and government

agencies and stuff like that

and you know these are supposed to be

some of the best stocks on the OTC

market now the venture market is the

sort of development stage and these are

stocks that aren't able to qualify for

the best market but are still doing

reporting undergoing annual verification

and you know they're meeting some

standards of transparency in the in the

hope that they will move up to the best

market these companies also must meet a

minimum price of one penny right and

they can't be bankrupt they can't be in

bankruptcy now the pink sheet stocks are

you know these are also subdivided into

categories and essentially the important

thing to know here is that any stock

that is listed in the Pink Sheets is

going to be a stock that doesn't have

and doesn't offer a lot of transparency

and we really might not know a lot about

the company how much they make their

total net worth how many employees they

have and stuff like that now the fourth

tier of the OTC market is the OTC gray

market and this is I guess even lower

than the Pink Sheets and the pink

markets this is where stocks are not

able to publicly quote the OTC

securities so they're not even being

publicly quoted and they're not going to

be electronically traded so for the most

part we wouldn't even see them which is

why I didn't include them on this

in the images there all right so now

traditional penny stocks right

traditional penny stocks would trade

between a penny and 99 cents right

that's a penny right so it's a penny

stock

well they continue to trade any

increments of 1/100 of a penny and you

know as long as they continue to trade

above 1 penny they will be traditional

penny stocks and you may see them on NYC

and Nasdaq exchanges from time to time

so you know if they haven't received

delisting notice yet but some of those

companies they may be near feet facing

bankruptcy they are not in very good

financial standings otherwise their

stock would not be priced at you know a

penny or two pennies or whatever it

might be so generally speaking they are

among some of the weakest stocks in the

market and they very rarely represent

good investment opportunities so that's

not something that I would trade those

are not the type of stocks that I traded

to make two hundred and twenty thousand

dollars in the last twelve months now

when you look at penny stocks I always

have my level two quoting just in two

decimals because I don't trade the sub

pen or the sub one dollar stocks but you

can see here these two stocks are listed

on national exchanges and so you can see

Nasdaq as a market maker right here and

you can see let's see this one will have

well it's got bats it's got ARCA it's

got edge so you know both of these

Nasdaq is here on the side both of these

are listed whereas these two stocks are

on the OTC exchange so you're not going

to see NY IC or Nasdaq as market makers

creating the market you're going to see

a different group of you know broker

dealers and market makers providing the

market for these stocks and sometimes

you'll recognize that one of these guys

is almost completely controlling the

price action that's part of the

manipulation that we can see in the OTC

market where one market maker one broker

is really controlling the price now this

is a sub penny stock so any stock

trading below a penny right now this the

stock is trading between a tenth of a

penny and

nine tenths of a penny so it's a sub

penny stock it's just below a penny but

it's not it's not one hundredth of a

penny it's a tenth of a penny and you

can see here the sub penny stocks you've

got the two decimal points the two zeros

and then now we're at 1/100 of a penny

all right you can see these stocks for

the most part their charts are almost

unreadable very very little price action

very little volume the only time these

usually get volume is when a message

board or something like that starts kind

of promoting the stock or pumping them

up it's not something that I would ever

trade and then you've got the trip zero

stocks

all right this these are the stocks that

are trading in one hundredths of a penny

these stocks are priced between 0.01 so

the triple 0 and 0.0 0.4 so as you can

imagine these types of stocks are often

used for manipulation because if a stock

goes from point zero zero zero one up to

point zero zero zero two it moved up 100

percent so many of the quote unquote hot

penny stock alerts are on sub penny

stocks or trip zero stocks and they

primarily benefit the people who first

bought the stock let's just say for

instance someone buys a hundred million

shares of the stock at point zero zero

one that's ten thousand dollars one

hundred million shares but it's only ten

thousand dollars well if the stock goes

up to point zero zero one it's actually

gone up enough for them to make a

hundred thousand dollars if they put in

a hundred thousand dollars it would go

up enough for them to make a million

dollars and that's why you see a stock

promotion and you know the pump and

dumps in this price range because it

doesn't take a lot for these to move up

significantly having said that these

rarely have the liquidity to buy a

hundred million shares and who wants to

do that right I certainly don't and this

is why traders who really are making a

living in the market are never trading

these stocks they look like this right

and look at how many shares you have on

either side this traded three hundred

million shares

day but this is what the price looked

like all day long right there's nothing

to trade here you can't trade this now I

actually saw this stock because I saw it

was on message boards is getting you

know promoted a little bit and you know

people are saying oh it's going to go

back up it's like give me a break I mean

is it really going to go back up this

thing is at the bottom of the barrel I

guess it has nowhere to go but up but

this is not something I would ever put

my money in and the other place it could

go is delisted gone bankrupt and the

money's gone alright so I have found in

my years of trading that I can reduce my

risk in the market by focusing on stocks

listed on NYC on NASDAQ Amex real stocks

real companies and those are stocks that

they're going to face the requirements

to put out earning statements to be very

transparent they're less likely to be

used as vehicles for this type of

manipulation that you see in the

sub-zero and triple zero sub penny and

triple zero penny stocks okay now as you

can see from you know some of these

charts and and also some of the charts

of the stocks that I traded earlier you

know being a profitable trader you don't

have to trade traditional penny stocks

you can trade stocks price between $1

and $10 and you can do really well I had

an account in one month that I grew from

a thousand dollars to eight thousand six

hundred and fifty three dollars and it

wasn't trading penny stocks in the

traditional sense it was trading stocks

between $1 and $10 per share right

that's a 760 percent gain and I didn't

have to worry about buying a million

shares of a you know stock priced at one

penny I feel comfortable putting my

money into these stocks and the other

thing that you have to realize is that

for me this is a strategy that's

scalable because I know when I'm trading

stocks that are liquid I can buy and

sell larger amounts of size you know

when you have a stock let's say like a

koa or a kao this is a stock that in the

last few weeks has gone from you know

five dollars up to sixteen dollars it's

a 300% move it's on millions and

millions

shares of volume so this is a very very

liquid stock now for me I may only buy

5,000 or 10,000 shares but other traders

who are maybe have bigger accounts than

me they might feel comfortable taking 50

thousand or a hundred thousand shares

and on those types of moves they could

make four hundred or five hundred

thousand dollars and they're doing it in

a 100% legal way a 100 percent ethical

way trading a stock that's simply strong

because it has a catalyst and you could

never do that

trading penny stocks so if you learn how

to trade the stocks between $1 and $10

and you can be profitable if you can

make $20 a day and then scale that up to

50 and then a hundred and then 200

you're on the same path as me that's

what I did I start with 100 a day built

it up to 200 next thing I know it was

four hundred five hundred and now on my

best days I make five maybe even ten

thousand dollars to the point where I

made ninety four thousand dollars over

the course of three months trading

stocks like this you know a stock that a

couple weeks ago was priced as a dollar

ninety one big news surged up to five

dollars pulled back a little bit

squeezed up to six dollars that's like

five six hundred percent game and we see

this happen all the time right so you

can make a living trading penny stocks

but it doesn't have to be the the sub

the sub penny the trip zero stuff you

don't have to mess around that stuff I

don't know a single profitable trader

who trades those types of stocks alright

so if you're thinking about trading

penny stocks make sure you step back a

little bit and you think about the big

picture the big picture is that if you

want to build a career that you can

potentially be doing for the rest of

your life and I say this we've got a

student who joined our room

just this week who's 81 years old he's

been trading this is his career he's

been doing this his whole life you can

do this for the next 30 40 50 years of

your life so set the foundation that's

scalable and for me that's based on

trading stocks between $3 and $10 and

then if I want to trade stocks between

$10 and $30 now I've got the account

size to do it and the same principles

apply so I can trade a stock like you

know Tesla or I can trade in a Nvidia

this is a higher price stock but you can

see this is this is a pretty strong one

today

and it had a lot of opportunities so you

know once you've built up your skill now

you build up your account and you can

scale the strategy to any price range

and then next thing you know you are

buying Apple IBM and Microsoft and

you're trading the strongest stocks on

the market all right guys so I hope this

has helped you understand penny stocks

if you have any questions I'd love to

have you comment below I'll make sure to

come back and answer them

as soon as I see them all right thanks

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