Penny Stock Trading for Beginners 2020

Have you noticed that in certain weeks the  penny stock squeezers run a lot longer?  And maybe the next week or the week after  all the penny stocks sell off almost instantaneously  after a pop, and the sellers gain control?  Market sentiments in penny stock world are  very much driven by psychological emotions  and move a lot faster than you may realize. 

 

penny stock trading for beginners
image credit - Google | Market Business News

 

Today I want to take the concept of trader  psychology further, by breaking down the three  kinds of small cap penny stock market cycle,  and how the overall market condition affect  the behaviors of buyers, sellers, market makers  and stock pumpers.   

 

So by the end of this article, you will be able  to see the trends in buyers and sellers in  the penny stock world, and profit beyond just  reading patterns, but from trading the traders. 

 

As usual, these videos take me a good 10 hours  to make, to make sure its 99.9% value , and  0% hype. and 1% of bad jokes, I think I got  that math right.  And all I ask from you, is a simple tap on  that like button.  That’s all I want from you.  Thank you very much.   

 

Penny Stock Trading for Beginners 2020

 

Okay, if you’ve traded penny stocks in the  last 4-5 years, you’ll notice that market  cycles in the small cap world, rotate a lot  faster than the typical bull market or bear  market of the large cap world.  

 

 Those sentiment can last years.  But in the small cap penny stock world, we  can see a week to 2 weeks of a lot of green,  a lot of bullish movements, followed by the  next 1 or 2 weeks, where all the penny stocks  are selling off and we see a sea of red. 

 

See, an ocean of red.  Which marks the selling sentiment.  And that's because the players in penny stocks  are a lot smaller, these stocks are typically  below $50 million market cap, some even as  small as $5 mil market cap, in the grand scheme  of things, it doesn't take much money flow  in or out in order to push the stock in either  direction.   

 

And I've noticed that in between the buying  and selling sentiments, there's usually a  short period of stagnant sentiment, where  nothing was moving, and usually the moves  are like 10 cents, and many of which are chat  room pumps.   

 

This is a simple Google calendar I use to  track the major penny stock movers on the  day.  I like stocks that are generally lower float,  above $1, and can give me more than 50 cents  range.   

 

So in June, overall, we had a pretty bullish  market sentiment in the penny stock world.  These are tickers colored in green on this  calendar, obviously  So you can see a lot of low float squeezers  like $SOLY, $ELTK, $MLNT, $PRVB.  

 

Penny Stock Trading for Beginners 2020

 

As you can see in these charts often marked  by a significant green candle and high volume  of buying breaking out on the daily chart.   

 

Typically the break outs are very strong,  and the buying pushes the stock higher all  day long.   

 

And a lot of times, in these markets, the  day one move would fuel a day 2, or even day  3 move to the upside.  So how exactly should we trade and take advantage  of the buyer’s market sentiment, and no,  its not just some answer like buy the break  of whole dollar breaks and sell 20-30 cents  later.  

 

 Buy my DVD and fund my lamborghini.  Let’s take a look at CEI on July 9th. 

 

Which was the last major runner in the last  buyers market just 2 weeks ago.  So in a market where the buyers have control,  typically the gap up penny stocks with a low  float will break out higher and trend all  day.  

 

 Penny Stock Trading for Beginners 2020

 

CEI on that day had a PR release and a reverse  split the previous day.  The best way to approach this kind of play  is to buy the break of premarket high as per  my gap up long strategy.   

 

If the stock is low float like CEI and had  a float of 2 million, generally it’ll squeeze  up in dollars like we see here.  In the buyers market, typically after the  initial push up at the market open, the stock  will pull back and consolidate mid day around  lunch time.  

 

Now during mid day, doesnt matter whether  you are in buyers market or sellers market,  mid day hours is where the market makers show  up to f* with you with fake breakouts and  break downs on low volume.  

 

 I talk about how you can spot market maker  manipulation in this video.  But the next opportunity for longs to get  in at, would be the downtrend break after  a consolidation. 

 

You can avoid and get  in after the stock confirms that its ready  for round 2 push to the upside with strong  volume.  Again, don’t buy breakouts, either you join  the front side with premarket downtrend break  or the mid day consolidation break.  

 

Penny Stock Trading for Beginners 2020

 

 A third way to profit in a buyers market as  a long trader, is to swing stocks closing  strong on day one overnight for a premarket  gap up or morning spike on day 2.  Now we can see CEI failed as an overnight  play, but if you’ve seen my overnight buy  strategy video, you know that this daily chart,  doesn't not fit my criteria.  

 

 But you can see, $KPTI and $FCEL were good  examples of swing overnight candidate.  Again, I go through my thought process in  greater detail in this other video.  Now, there is still opportunities for short  sellers in a buyers market of course. 

 

But you need to be very careful with your  timing, and wait for a trend to break before  going in short.  Don’t try to pick the top on day one low  floats, wait for the top to confirm.  I’m gotten hurt many times before, and i  would never short front side again.  

 

 In a buyers market, even when you short the  trend breaks, its scalp only.  In this example of CEI trent break at 4.30,  you have to risk the reclaim of the trend  around 4.70 for a potential to sell off to  the previous break out level around 3.50.  So you’e risking 40 cents to make 80 cents.  Thats not a risk reward i personally like.  

 

 Some short sellers dont mind that risk reward,  but its always better as a scalp only.  The safer way to short penny stocks in a buyers  market in my opinon, is to short day 2 or  day 3 . Which is my favorite penny stock short  strategy.  $CEI and $KPTI are perfect examples of that  set up.  

 

I think that’ll have to be a seperate video  all on its own, it’ll take me a long time  to explain the specifics and the psychological  reasoning.  I mean, you guys know I always put a lot of  time and research into each strategy video,  theres no fluff in there, just a lot of bad  lambo jokes. 

  

Penny Stock Trading for Beginners 2020

 

So if you want to see a penny stock short  strategy video, drop me a like, leave me a  comment to let me know.  I promise illl make it for you guys. 

 

Next, you can see that in a matter of 2 week  transition period, from end of June to early  July, we are now seeing a lot more red color  in the current week.  This is a seller’s market in the small cap  world.   

 

What these red tickers mean that, there's  a lot of strong movements pushing to the upside  early on, generally a premarket gap up or  just a morning spike due to some news release,  or pumps, and they sell off most of their  gains, over 50% of the gains to be specific.   

 

Some will hold green on the day but closing  very weak after some volatile sell off.  

 

Penny Stock Trading for Beginners 2020

 

That simply means, the sellers and the shorts  have control.  You can see that with $CAPR, this stock gapped  up to $7 on July 15 premarket from $3 close  the night before.  Spiked up to almost $9 early on because of  its low float, and just sold off back down  to $6 at the end of the day.  And on day 2 and day 3 it just sold off any  gains.   

 

And its the similar story with $CODX on July  11 and again on July 18 just one week later.  The stock gapped up and just got dumped early  on.  In this kind of market, there generally isn’t  a day 2 move to the upside, instead, most  of the moves on day 2 and 3, is the continual  selling to the downside.   

 

So the sellers still have control.  So what's the best approach as a long trader  in a seller’s market. 

 

Well, you have to wake up early, and be able  to trade premarket.  As you can see on our example CODX, the push  to the upside happens early around 7 to 7:30am  market time.  If there's enough volume premarket, look at  this, 200k shares, 400k shares per each 5  min candle.  

 

 It will most likely push.  I know robinhood doesn't allow you to trade  premarket, but If u can only trade with mobile  apps, check out Webull instead, its also free  commission trading but with extended hours  functionality.   

 

And if you are long premarket, i would always  sell along the way up and out most by market  open.  Because in a sellers market, as you can see  At the market opens, $CODX pops a little bit  with premarket shorts covering and late buyers  chasing, then it just dumps all day after  the pop.   

 

And you may realize, this is the opposite  of what we see in a buyers market.  Long traders have to scalp for smaller moves,  while short sellers can easily short the gap  up on day one for an all day fade to the downside.   

 

And why is that?  Again, think for the other traders, psychologically  in a buyers market where all the longs are  seeing so many parabolic moves to the upside,  they are more likely to be interested in buying  the next runner?  Right?  Everyone wants to jump into the next runner  for that lambo money.  

 

Penny Stock Trading for Beginners 2020

 

But if you are trading $CODX on this day Thursday  July 18, thats after seeing stocks like IMRN,  $CAPR, $DMPI run up pre market and sell off  really quickly just 1 to 2 days prior in that  same week.  

 

So people remember that.  The volatile sell off creates fear, which  is the emotion that dominates the sellers  market.  In this kind of market sentiment longs are  more fearful to buy, and if they buy, they  are quicker to get out.  Because they remember what transpired yesterday  And in this market, sellers are more complacent  and shorts can hold their positions generally  for an all day fade.   

 

The small cap market is very much driven by  psychology and emotions.  And its by understanding trader psychology  and identify emotions of the current sentiment,  that we can stay afloat in this game.  Lets go to the third market sentiment, the  stagnant market. 

 

In between each major sentiment cycle, generally  between the buying and selling cycle, there  is usually a few days to a week of stagnant  market.  In this kind of market, there's just not a  lot of things moving after the open, either  all the gaps just sell off and fade all day  with no bounce.  Or there just isn't anything moving at all  and no significant PR’s in the penny stock  world.   

 

The volume is generally really low, and the  stocks just move in channels of 5 10 cents.  In my opinion, this is the most dangerous  cycle to trade in the small cap world, and  its better to avoid trading this kind of low  range stocks all together.   

 

And thats because, this kind of low volume  environment is easiest for pumps to happy.  Many pumps, not all, are started by  a lot of penny stock chat rooms, newsletters,  and similar services. 

 

Think about it, members of the small cap services  pay to be there to play penny stocks, more  specifically, on the long side.  So Lets put our trader psychology analysis  hat on again.   

 

Penny Stock Trading for Beginners 2020

 

Most of these traders are new, and do not  have the account size to short with margin,  or pay for premium brokers to locate shares.   

 

And especially with the rise of free trading  apps like robinhood and webull, most new traders  are long biased.  And they join these cheap penny chat room  services, for alerts to buy stocks.  

 

 And when these chat rooms don’t have any  major movers like CEI, SOLY, to buy long in  a stagnant market condition. 

 

How are the moderators going to please their  thousands of members, who are paying them  like $50 to $100 a month for their alerts?  Well, they buy up low float stocks first,  and alert their members to buy and sell, with  them.  And they specifically pick low float stocks  because it doesn't take much buying to move  those stocks.   

 

Recent chat room pumps like CUR, and LMFA  were perfect examples.  There’s only a couple thousand to ten twenty  thousand shares traded.  This is not real buying with volume, these  are chat rooms swapping shares with each other,  and the moderators accumulating shares.   

 

And keep in mind CUR only has 800k shares  float.  And out of nowhere, there's a 20 thousand  share volume in late afternoon. 

 

This was when they were alerting their members  to buy on low volume.  And the drop that followed is when they tell  everyone to sell obviously.  But guess who sold first and who sold last?  Like ive said before, cheap chat rooms are  cheap for a reason.   

 

Thats why many experienced traders join these  kind chat rooms and short into their alerts.  Again, Day trading penny stocks is 90% emotional.  This is why I believe day trading psychology  is so important.   

 

You have to think for the other players involved,  and understand the market sentiment that will  drive the others to make the buying or the  selling decisions. 

 

This is the kind of psychological analysis  that will separate you from the sheep that  follow alerts and study just patterns.  Don’t trade chart patterns.   

 

Understand the traders in the stock.  And trade those traders.  Again, if you want that penny stock day 2  short strategy, comment down and let me know.  

 

Thank You

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