Penny Stock Trading Plan

Aug. 19, 2011 8:55 PM ET
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Contributor Since 2011

James Brine is a full-time penny stock trader with 8 years experience researching and trading OTC and Pinksheet listed companies. He also runs a online penny stock education and alert service, Ultimate Stock Review. Where he shares his knowledge to educate members and help them become successful traders. For more articles visit and check out his other tutorials.

Trading the OTC (Over The Counter) Market can be a very profitable business
venture if done correctly. But it can also be very risky if you do not apply
sensible strategies with strict discipline.

Learning the universal principles of profitably trading OTC stocks will set
you apart from the crowd of impulsive investors with no plan and no direction.

Take the time to go through this tutorial and the next two in our Penny Stock
Beginners series and you will be able to learn from our years of experience
trading and researching the small cap markets. Which will save you valuable
time and precious capital.


What you will learn.

Part 1

- What is a Penny stock

- What moves penny stocks for huge gains

- 5 mistakes to avoid

Part 2

- Self discipline when trading risky penny stocks (very important)

- How to find a good on-line broker with low commissions so you can start

- We'll show you how to research penny stocks

Part 3

- Entry strategies and set-ups

- Setting Stop losses

- Exit strategies

- Advanced strategies

Lets get started!



- How the OTC market works

Penny Stock are usually classified as stocks trading under $5. The companies
often have small market caps and will generally be a small start up company, a
newly listed reverse merger company or a struggling company currently trading
for pennies.

The OTC markets work very differently from say the NYSE or the NASDAQ. The
reason for this is that most companies traded on the OTC are usually much
smaller and therefore much more volatile. A stock worth $0.005 can easily go to
$0.01 whereas finding a stock that will go from $100 to $200 overnight is very
very rare. Agreed.


- What moves Penny Stocks for huge profits

Now while fundamental and technical research, along with scouring for news
releases is always helpful when deciding where to put your capital. Penny
stocks rarely follow the conventional pricing formulas of the large cap
companies so we cannot rely on the same strategies for finding companies with
good value or growth prospects.


Because these companies are not on the radar of the mainstream media or
research analyst for big investment firms they generally find it hard to get
investors to buy their stock even when they may have very attractive prospects
for the future.


So how do we find stocks that may double or triple in a matter of days?

When it comes to investing in penny stocks its all about momentum. And the
greatest builder of momentum on the penny stock market is Company Promotion and
Advertising Campaigns.


Companies spend millions of dollars on IR/Media firms for advertising campaigns
in the form of newsletters and Internet banners to increase investor awareness.
When investors read these ads, like what they read and invest. We see a rise in
volume and price volatility.


When volume increases forums and traders scans start to buzz about the ticker
and momentum will continue to build until finally there are no more buyers left
and the stock may then drop or just lose its steam for a while depending on
whether the company really does have good future prospects that are now on the
radars of more long term investors.


It is our job to inform you first on these new campaigns so you can get in,
make your money, and get out.


- 5 Mistakes to Avoid

1- Don't trade money you cannot afford to lose

Penny stocks are very volatile and can have major price swings both positive
and negative in a short time frame. No one trade is guaranteed, so we must
never trade money that we cannot afford to lose. It would be wise also not to
bet your entire account on one trade as stock trading is a numbers game and we
want to be around to fight another day no matter what the outcome of any one


2- Trading without a plan

For every trade you must have a plan before you enter. Once you are in a
position the emotions of trading can take control and cloud good judgment. So
its important you have a clear profit taking price and stop loss price. Also
know your reason for being in a trade so you will see if that reason is no
longer there and it's time to exit.


3- Trading without stops

As soon as you are filled in a trade you MUST put in a stop loss order. This is
especially true for penny stocks. this way you can limit the amount you lose on
any one trade. It is up to you and your plan where exactly where you place your
stop but I would not risk more than 10% of my account on any 1 trade so if you
are filled at 0.01 your stop will be 0.009. If you are only using 50% of your
account on a trade you can place the stop at 0.008.


4- Overconfidence

One of the biggest destroyers of traders capital is overconfidence. Traders
will have a few winning trades in a row then think they have worked out the
markets and forget about there plan discipline and trade blindly. We must use
strict discipline, not get greedy and look at the long term benefits of
following our rules.


5- Not booking in profits

We must also be ready to take profits when they present themselves. We don't
want to cut our profits short but penny stocks can turn at anytime so we don't
want to get to GREEDY. There are many different ways to accomplish this, here are a few.

- Set a trailing stop that moves higher as your stock gains in price.

- Taking partial profits at various prices

- Having a certain price target where you will exit the position.


I hope you have enjoyed this tutorial and learned some valuable lessons. You will receive the next two parts of this series as a suscriber to

In the meantime be ready for our Stock Alerts so you can use these lessons to book in some Big Profits.


Happy Trading USR



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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