- Investor Strategies - Part Two


Swimming with the whales:

There is a strategic, financial and of course ego preference to being a “big fish” in a little pond as opposed to being a little fish in a big pond and there are plenty of large investors (whales) that specifically play small stocks for those strategic and financial reasons. In fact, regardless of overall current market conditions large investors often realize that their big “stock” ponds aren’t providing enough “food” for their big appetites. For instance, some of their larger and often longer term investments may be oversold, have peaked and/or are providing limited opportunities for significant gains over the short term, not to mention tying up important investment capital (the same dollar cannot be in two stocks at the same time). Big stock runs do occur on the “big” exchanges, but are often too few and too far between for many “big” investors. Plus there’s a certain amount of excitement and dare we say addiction to trading penny stocks. As a result those big fish will start swimming in the smaller ponds looking for alternative, shorter term, more profitable (and exciting) investment arenas – and they’re looking down to the smaller exchanges to find them, where their trading skills and resources can produce profits that far exceed the larger exchanges they are currently trading on. There have been plenty of small stocks that have created large investors. Large investors (whales) often share a few similar characteristics; First, there’s usually if not always at least two of them present (if not outright involved in) large penny stock runs. Second, whales can help a stock with their money, they can hurt a stock with their shares, and usually can and/or will do both – especially if the bulk of the shares they are currently holding (for now) are at lower prices than the stock is currently trading at – and to them; “Every sell in the green is a good one.” Third, and this is the most important thing to know about whales, they know not to “hold the door ” (hold their shares and/or buy shares while others are selling) while their profits walk out it as other investors take what the whales perceive as their money and run. Some stocks may have multiple whales of various sizes – but if the “whales” are there – then the money, or at least a significant opportunity to make it is there too or those whales wouldn’t be there in the first place.

The Mob Rules:

Investor activity creates stock productivity when it comes to pretty much any stock – especially the highly volatile penny stocks. The “activity” that produces that “productivity” AKA profits, is based more on the number of investors/shareholders actively trading the stock more than on anything the company is doing on its own (Welcome to Penny Stock Trading 101). Understanding and accurately calculating those “numbers” combined with recent past and current performance by the stock can sometimes tell you the “future” of it. If a stock has above average interest and activity from investors/shareholders it usually means the stock will be “pressured” in one direction or the other. Which “direction” is identified by the stock’s current Level 2 activity, Market Maker size and line-up, and revealed blocks of stock placed on the bid and/or ask”. If the majority of the “activity” is on the bid (buying pressure), then the stock’s “productivity” will usually be in an upward “direction” – if the majority of “activity” is on the ask (selling pressure) the stock’s “productivity” will usually be in the downward “direction”. Accurately understanding and interpreting Level 2 is explained in detail below.

This type of trading dynamic is akin to the “day trading” culture that burst on the scene in the 1980’s – but today it’s more of the “week” or “month” trading concept. The days of getting in and out of a stock with a significant profit in one day are long gone – but by using the principles and strategies outlined in this program, you can consistently get in and out of stocks over the course of a few days/weeks with a significant profit while maximizing those profits and minimizing risk – and the key to that is understanding and reacting accordingly to the “mob” mentality that often creates some of the biggest stock runs among the small caps (and biggest losses). “Mobs” can be a good thing if they’re throwing money at you on their way “in” – or they can be a bad thing if you end up getting trampled by them and their shares on their way “out”.

There are several Internet trading, analytical and “event” alert platforms and venues that will “alert” you when a mob scene is in progress – ideally in the early stages of it. Then, using the principles and strategies of this program, and Level 2, you can fairly accurately interpret exactly which direction that “mob” is progressing to.  If the “mob” is progressing in to a stock, the share price will react accordingly – if the “mob” is progressing out of a stock, the share price will likewise react accordingly. They key is to figure out exactly and quickly at what stage that “progress” is currently in when you show up and based upon specific and noticeable “sell signals”, where it will probably eventually end – and it always ends – it’s only a question of when and at what price.

If you find a “mob” that moves fairly in unison and they have a fairly good track record for selling their shares for more than they paid for them in the stocks they move in and out of – then coat-tails are the order of the day. Try to join and follow that mob and use the strategies outlined in this program for as long as that particular mob is making money – which on average is about 3 to 5 stock plays over a one year period.

It takes more than one car to make a “pile up” road crash and when a “mob” is actively involved in a stock play it’ll be “bumper-to-bumper” traffic on that road – sometimes in both directions at once. So make sure you are in the right lane, at the right time and headed in the right direction. That means watching for “sell signals” – that may occur even when the majority of investors are buying. This concept is called “Watching for Brake Lights” – in other words, even if a particular stock is still increasing in value and buying pressure that may not mean your best strategy is to stay in your current “lane” – especially if the cars ahead of you start “hitting their brakes”. That is when you do not want to be trapped behind them in the same lane headed in the wrong direction. Do not let “greed” obscure your windshield – always watch for the inevitable brake lights.

The “Limbo” is a Dance – Not a Trading Strategy:

The battle-cry of the underwater shareholder; “I refuse to sell this low!” But as the song goes, “How low…will you go?”  That question “should” be answered by which direction the share price is headed combined with your common sense. To use a morbid example of sorts; If your finger has gangrene and it’s spreading and you absolutely refuse to amputate that finger – what will eventually happen? They’ll be calling you “Lefty” before long. Many investors would rather lose their entire arm than admit to themselves (and others) they’ve made a mistake that cost them a finger. When they asked Charles Schwab how he made his fortune in the stock market, he replied, “By selling too soon.” If Every Brokerage asked every client why they were closing their now zero-balance accounts, I bet the number one answer would be, “I sold too late.” Using the “morbid” example above, they refused to save their arm by refusing to lose their finger. When the Titanic tragically sank, some were willing and able to leave everything behind and got in those life-boats as fast and as soon as they could. Then there was the band that merrily played on until they were neck deep in ice water. Which group would you rather be in? Yes, I know the reason was there was not enough lifeboats on board to accommodate every passenger – that is exactly my point! If you suddenly realize there aren’t enough lifeboats (buyers) to get you off that ship – how much longer are you going to wait? Some of those passengers left a fortune behind in their rooms and storage and entered those life boats with nothing more than the clothes on their backs. The band on the other hand left nothing behind…except themselves.  Who ended up better off in the long run? For four days the Titanic was headed west with no problem – then it took less than 3 hours for her to head south…big problem – for those that stayed on board.  It rarely matters how long a stock stays above water and on course – but when she starts to “head south” – don’t miss that last lifeboat! Visit any Internet investor based message board or chat venue and you will always find longs, usually in at much higher prices (check their posting history the past 90 days or so) who are actually bragging they’re still holding onto their stock because they “refuse to sell this low”. Then check back in a few days or weeks later when the stock is probably lower, sometimes much lower, and you’ll see the same longs saying the same thing. What is the first thing you should look for when you board any ship? (even one everybody absolutely agrees is un-sinkable) The lifeboats! Not only know where they are at but when it’s time to get on one…and fast! Before you board any ship, know your point of disembarkation (sell point regardless of price) – and if/when somewhere during your voyage  your ship (stock) takes a sudden and unexpected detour south, with no sign of a reversal in sight – seriously consider heading towards the lifeboats – Like Charles Schwab made a fortune specializing in.

Statistically, when a Penny Stocks drops significantly below (30%+) its recent 52 week high , Penny Stocks are the least likely of any type of other stock to experience a rebound to, or above that previous 52 week high – it just works out that way “statistically”. Again, “statistically” it usually takes Penny Stocks a lot longer than 52 weeks to rebound back to their 52 week high and/or all time high, if they ever do at all – especially when there is an above average amount of Authorized and/or Issued shares – which most Penny Stocks have. If the Titanic had managed to stay afloat another day or two, everybody would have made it off. But despite everyone’s best effort and “hope” – it didn’t. Keep that in mind.

The bottom line when it comes to staying “on board”  a stock that is experiencing a prolonged and steady decline – don’t just sit there listening to the band while watching the lifeboats sail away – still waiting for your ship to come in. Remember; “Hope is NOT a Trading Strategy” and even supposedly “un-sinkable” ships still end up and stay at the bottom.

Tools of the Trade:

You are among the most sophisticated and well equipped investors in the history of Wall Street – many of you with trading information, tools, resources and analytics the world’s top Brokers only dreamed about having access to even ten years ago – and now it’s all at everyone’s finger tips. All you need now is those proper “tools” to get the job done and get it done right and the ability/knowledge/skill to effectively utilize them to maximize profits and minimize risk.

[1] Online Broker Accounts: We suggest you create at least two separate online trading accounts with established and reputable Brokerages (there are several) – the Broker(s) you choose should have global access to all international and domestic markets and provide all the trading tools necessary for you to execute trades effectively and instantly. Make sure your Brokerage has “live” trading Brokers and technical support that can execute trades for you or solve technical issues instantly over the phone or online. Make sure each Broker is able to provide you all the trading and research tools you will need and be using probably on a daily, hourly or even at times by the minute basis – and sometimes on the go and/or away from your regular trading location/platform.

[2] Level 2 Trading Platform (L2): If you’re trying to conduct effective and efficient trades within seconds (not minutes) then you’re going to need constant access to a “real-time” Level 2 platform – most online Brokerages provide this service for free – if yours currently does not - find one that does ASAP even if you have to pay a small fee to the Brokerage and/or to an outside third party provider.

[3] Redundancy: You will need to use Brokerages that provide access to multiple exchanges and on multiple trading platforms; Online, mobile device, telephone, etc. If one of your Brokerages is experiencing technical, access or usage problems you will at least have access and use of alternative venues and resources. 

Whichever online Brokerage(s) you eventually choose, if necessary you must be able to identify, conduct your due diligence and execute a trade on any stock within 10 minutes from anywhere in the world – time is money and seconds count.

When executing trades – better late than never…sometimes is never.

Don’t Fall in Love:

Song writers make money from broken hearts – psychiatrists make money from broken hearts – penny stock traders? Not so much. So don’t fall in love with any stock, especially a penny stock…the streets of Penny Stock Land are paved with broken hearts. Penny stocks not only have a nasty habit of breaking hearts, but investor’s bank accounts as well. Here are six quick steps to trading penny stocks. Step one: Be cynical. Step two: Be very cynical. Step three: Understand they’re “penny” stocks and not dollar stocks for a reason. Step four: Complete your “due diligence” – key word, “complete” your due diligence. Step Five: Double check your completed “due diligence”. Step six: Wade into the shallow end – not cannon-ball off the high dive. We wouldn’t suggest investing all your designated funds into a penny stock on your first trade, instead, “wade” in slowly in stages. Consider making at least 2 to 4 trades to complete your desired accumulation of a penny stock, always keeping at least 20% of your investment capital designated for that particular stock you may want to keep in reserve for “averaging down” if necessary and/or re-loading at lower prices in case the price drops before the run up or to add to your position if you are certain you have a bona fide “runner” on your hands. 

Philophobia: An overwhelming and unreasonable fear of falling in love, beyond just a typical apprehensiveness about it.

Symptoms of Philophobia: Feelings of intense fear, panic, sweating, rapid heartbeat, difficulty breathing, difficulty functioning, nausea.

Symptoms of losing a ton of money on a penny stock you were absolutely sure was going to make you a ton of money instead: Feelings of intense fear, panic, sweating, rapid heartbeat, difficulty breathing, difficulty functioning, nausea.

“Paper Trading” or “How you get to Carnegie Hall”:

In case you’re a lot younger than us and missed the “Carnegie Hall” reference in the title – Carnegie Hall is a top tourist attraction in NYC that has hosted many of the biggest stage performers in the world. The very old joke goes; “A tourist in NYC walks up to a man standing on a corner and asks, ‘Excuse me Sir, can you tell me how to get to Carnegie Hall?’ And the man replies, ‘Practice, practice, practice.’”

There is a simple and effective method for avoiding costly mistakes and learning how to profitably trade utilizing a risk-free, no-money-required method of buying and selling penny (or any) stocks, known as "Paper Trading" AKA “Practice, practice, practice.” All you need is a pen and a paper (or dry erase board) to keep track of imaginary trades in real stocks, using a portfolio of imaginary money.

Besides this program, “Paper Trading” will probably be the best thing you will ever do in terms of learning how to successfully and profitably trade penny stocks. You can train for the “big fight” against an imaginary opponent, risk and money free, for as long and as often as necessary before you feel comfortable jumping into the ring. By tracking imaginary profits with your imaginary Paper Trading, you can make a more knowledgeable, experienced and skillful entry into the real money game of trading penny stocks. This will also help you learn and develop your particular and most effective method, system, formula and/or style of trading penny stocks while simultaneously learning from your mistakes and successes and also to master or at least identify all the things to look for when finding, identifying and trading your future penny stock winners.

We recommend you “paper trade” at least 4 stocks “successfully” and not just “paper trade” 4 stocks, but “successfully”, so you know you’ve at least semi-mastered it. Here’s why we suggest you do not start trading with real money until you’ve made imaginary money on at least four stocks in a row via paper trading; Making money on one stock is called luck. Making money on two stocks in a row is called a fluke. Making money on three stocks in a row means you’re starting to get the hang of it. Making money on four successful (profitable) paper trades in a row means you’re probably ready to start trading with real money. You’ll also develop a healthy respect for the high risk endeavor you’re about to embark on.

We look forward to seeing you at Carnegie Hall...

READ PART ONE:  INTRODUCTION - Getting Ready to Get Ready - Stop Banging Your Head Against the Wall - Learning and Trading as a T.E.A.M.; Together Each Achieves More - The Financial Benefits of Trading Penny Stocks - Going Where the Money is

READ PART TWO: Trading Like the Big Traders by Trading With the Big Traders – Trading and Conducting "Proper" Due Diligence as a Group – Selling Too Soon? - Minimizing Risk/Loss – Tools of the “Trade” – Paper Trading


READ PART THREE: The Decision Process – Good News Versus Bad News - Obtaining Accurate Data – Properly Identifying Buy and/or Sell Signals – Strategies for Identifying the Right Stock at the Right Time - Your "Top Five" Reasons Check-List - Trading Your Passion - The Importance of Diversification - Effectively Dealing with Delays - Activity Creates Productivity - Keeping it Simple - Trading by the Numbers


READ PART FOUR: “The Green Baron’s Wall Street Fighting Rules” – 20 Proven and Effective Strategies for Maximizing Profits and Minimizing Risk When Trading Penny Stocks – A Must Read for Every Investor!


READ PART FIVE: Common Investing Terms and Definitions