Best swing trading websites-top list for active traders

Best swing trading websites-top list for active tradersBest Swing Trading Websites Top List For Active Traders

List Of The Best Swing Trading Websites Online

Good day traders, today Im going to provide you a list of the best swing trading websites that provide free information. One of the biggest issues for traders in this day and age where information is readily available is finding quality information. In the past, before the internet, the only source of information for traders was books and magazines. Now there are thousands of sites that claim to be the best swing trading websites online.

Im going to provide you a list of some of my favorite sites. You dont have to pay anything to gain access to these sites and Im not a paid advertiser for any of these sites. Ive used them for years for some of my analysis and continue to do so on a regular basis.

Enjoy The Best Swing Trading Websites On The Internet

1. econoday These sites is the leading provider of economic news and events. They offer a subscription service, but most traders use them for their calendar. You can find out exactly what economic news is coming out and when it will be released. One of the biggest mistakes beginners make is trading in a vacuum and holding positions during important news reports. This site will help you stay organized and avoid entering markets immediately before economic announcements.

2. briefing Another great site that is a bit more focused on the stock market then the general economy. You can still get your economic calendar, but in addition, there are sections devoted to earnings, stock market analysis, pre-opening calls, and a bunch of other great features that will help you stay on top of the current market environment.

3. marketwatch This website focuses on the stock market as well as futures and commodity markets around the world. You get daily stories as well as detailed information on different market sectors. The site provides quotes, charts and great reasonably good commentary on most world financial markets. This is a wonderful site if you swing trade markets other than stocks. There is also a great economic calendar and updates on earnings as well. Market Watch also has a charting service called bigcharts. marketwatch/. The charts and indicators are both highly are highly customizable as well.

4. bloomberg This is another one of my favorite financial websites. You have to look around this site, but my suggestion is to go to the market data section. There is a wealth of information there, I use the earnings page every morning to let me know exactly which stocks are going to have earnings announcements later in the day. I highly recommend this site for high quality market data.

5. stockfetcher I stumbled on this site a while ago and knew from the start it would make my list of best swing trading websites. The site provides free filters and indicators to help you screen stocks. There are dozens of free indicators you can use and for a small monthly fee, you can create your own indicators and with a touch of a button screen thousands of stocks to fit your criteria. 15 years ago, you would have to download the entire stock market database daily and then run it through Trade Station. The process would take 12 to 16 hours now it takes less than 5 seconds. I highly recommend you add this to your list of the best swing trading websites.

6. barchart You may have visited this site or heard about it before, but I have to say its one of the oldest and most reliable sites for financial market data. You can get quotes and charts for a variety of stocks, futures, commodities around the world. You will also find daily news and earnings information on important stocks as well. If you dont subscribe to a paid chart service, you can get most of your quotes and charts for free. The charts have dozens of indicators that you can adjust and modify to fit your time frame and trading style.

Thats my list for the Best Swing Trading Websites online today. There are many others, but I highly suggest you start with these first.

If you want to see more sites that we consider the best swing trading websites, please go to our resource page. For more on this topic, please go to: Swing Trading The E-mini and Swing Trading Tactics

Easylanguage vsc

Easylanguage vscEasylanguage vs. C++

Easylanguage vs. C++

Anyone experience with both programming languages in order to develop + backtest trading systems? I'm not an expert in programming and hence I guess EL would be more appropriate, but I'm concerned that it does not allow enough freedom in parameter specifications.

Joined Nov 2004

If you are not a programmer, then unless you are prepared to put in a lot of work (and I mean a lot) then it would be much better to stick to TS or WL etc.

It also depends on what you want to do eg if you just want to produce some trading signals for the eminis then rolling your own may not be such a burden. Excel may be a possibility though it's not my cup of tea. There are TA libs available for Excel that will give you all the common indicators - even a free one I think.

In any case, unless you are a C++ programmer and really want to employ that experience, there is little justification in choosing C++ over Java or if you really must have a MS environment C#. In most cases software written in C/C++ will take longer to develop and certainly longer to debug. I you are starting from scratch, I guarantee that C++ will take longer to learn.

Having said all that, I think there are big advantages in rolling your own platform. Whether they are big enough to justify the work involved is another issue which one can only decide for oneself.

I have chosen to develop my own platform in Java for backtesting/system development/trading, and I think that it delivers in an integrated package what you would need several commercial packages to deliver eg good EOD technical market scanner - maybe equivalent to stockfetcher. trading system backtesting with any number of instruments per system, able to handle multiple time frame time series, genetic optimiser, charting (including real time snapshot charts - I'm working on the scrolling bit). It also does account level simulations ie the ability to simulate multiple trading systems in the one account and optimise capital allocation between systems or reallocate capital automatically depending on market conditions. There is also trading automation for integration with IB.

It has been a lot of work, but the freedom provided by a proper programming language is a huge plus. When all is said and done, I think the effort will be worth it.

I initially started work on this because I tried the 'backtesting' facilities in Esignal and rapidly came to the conclusion that it's rubbish (in fact a joke) for system development (nice charts though).

Without trying to start wars over programming languages, I would suggest that Java is a verg good choice for this sort of thing for many reasons

1. Free and very well documented with plenty of tutorial material available for free on the net. It is not necessary to spend a penny on software, books etc.

2. Fast enough. C/C++ may be faster but in nearly all cases fixing/optimising algorithms and/or data structures will yield far greater performance improvements than switching languages. I'd expect C# and Java to be roughly similar.

3. Cross platform. Java/Linux (or Java/Solaris) are very stable (and secure) environments for a trading platform. (Also free). If you must, Windows is also satisfactory.

4. A lot of quality free stuff available eg I use the JFreeChart libs for charts. This is more than adequate for building charts of good quality. JGap for a genetic algorithm library. Dislin for 3D optimisation surface visualisation. Jdom for handling XML. etc etc

5. Leading edge. You can now get 64 bit Linux for the new(ish) AMD chips and a 64bit JVM from Sun. If you want performance for heavy number crunching for backtesting / optimising / scanning, I expect this combination - especially with the Athlon Socket 939 or 940 processors - will easily outperform anything in the Windows world and be light years ahead of the likes of TS or WL.

6. A truly robust underlying programming environment. With WL or TS you are dependent on it having the capabilities you need and being robust and reliable. Without being in any way critical of WL or TS or other such environment they are much more likely to be buggy than Java or for the simple reason that there are many, many more developers in the latter environments. There are bound to be fewer serious bugs in the latter.

The daily range day trading strategy

The daily range day trading strategyThe Daily Range Day Trading Strategy

The Daily Range Day Trading Strategy captures a large chunk of the the average daily movement in a stock. I recommend trading volatile stocks with this strategy, although the method can be applied to nearly any actively traded stock (test it of course, before diving in). Increase Profits and Cut Your Day Trading Work Load with a High Volatility Stock Screen shows how to run a scan for volatile stocks, and the StockFetcher results will show you the average intraday range of the stocks found. Thats the stat we needhow much a stock typically moves between its daily highs and lows. This day trading strategy can be used on its own or with other indicators, methods or strategies.

If you are a forex day trader, use the Forex Daily Stats page to get all sorts of daily stats on the forex pairs of your choice.

With this strategy I watch for a volatile stock to make a high or low in the first 15 mins of the day. Often a high or low made early in the day is important, and the high or low made in that initial 15 minutes gives us a baseline for the rest of the day. We then watch to see which level (either the high or low made in the first 15 minutes or so) is going to be a high or low for the rest of the day. We do this by watching for a lower high or higher low in the stock as trading progresses. Simply watching a stock fall in the first 15 minutes, then rebound, then fall again—but not as far is it fell before—and then bounce up again is confirmation that the low in the first 15 minutes could be the low for the dayor at least an important low for the next while. Keep reading, examples will make this clearer in a second.

So now we now have an assumption that a low (or high) is in place for the day. We are also armed with our statistic which tells us what the average daily range (high low) is. Once weve established a low (or high) is likely in place, we take a position with a profit target that attempts to capture the rest of the daily range.

Here is a simplified example. A $10 stock has a 10% daily range. Each day this % range is converted into dollars based on the opening price, so today the price range is expected to be $1.00 (10% of the $10 open price). In the morning the stock drops to $9.75. Bounces up $9.90 then falls back to $9.80 and then moves higher again. We assume the low is now in place ($9.75). We buy, and place a target at the far end of the average daily move.

The average move is $1 (10% of $10). Weve already moved $0.25 (the open at $10 down to $9.75, which we assume is the low) so our target is around $10.75 (since our low is already in place we must assume all action will now be above the low and on the upside,) and then adjust it to fit other support/resistance levels or profit targets from other methods. To sum up, in this case our profit target is our assumed low plus the daily average range: $9.75 + $1.00 in this case = $10.75

The open is very important. For this reason, a move back through the open price can be used as an entry point. In the example above the stock made a low at $9.75, then bounced, and then fell back again to $9.80. Once the stock moves back up through the open price (in this case $10) enter a buy (or long) position. A stop loss can be placed below the most recent low.

Trade signals should occur before 10:30 AM EST. If you dont have a signal by then, you may have missed it, or the market is so dull that you dont want to be trading this strategy anyway. No signals after 10:30. Usually trades will occur before 10 AM EST.

This is also a great method for using the Truncated Price Swing entry strategy. That entry methods almost always provides a better entry point and therefore a higher reward to risk ratio (discussed later). Also look at Trend Trading: How to Spot Trading Opportunities for more ideas on trade triggers.

Daily Range Day Trading Strategy Example

As of May 5, 2015 BBG was one of the most volatile stocks on the US exchanges. Over the prior 30 days, it averaged 7.11% intraday price moves. 7.11% of the $10.90 open price is $0.77. That is how far we can reasonably expect the price to move off the open in a typical day.

On May 5 it opened at $10.90. Moves higher, drops and then moves higher again. It reaches the same high as before. This isnt ideal. To go short. Id prefer a lower high, but a double top is okay as well. Since the price showed it cant currently move higher, and has started to drop again through the open or pullback low, look to go short. A worst case stop loss order can be placed above the recent high.

With a short entry point having triggered, we now assume the high of the day is in place, in this case at $11.02. If entering as the price moves below the open price, $10.89, our maximum risk is $0.13 (plus a couple cent buffer, so $0.15). An alternative entry is just below the initial pullback low, in this case $10.83 (sometimes using the pullback low/high will provide a better entry than the open, and sometimes it will be worse). Risk increases to $0.22, although you can use an alternative stop loss levelit doesnt always have to be behind a major high or low.

Subtract $0.77 from the $11.02 high to get a target price of $10.25. With our $10.89 entry point, our profit potential is $0.64, while only risking $0.15. Reward-to-risk ratios of 3:1 or higher are not uncommon with this strategy. In fact, if the reward-to-risk is much less than 3:1, dont take the trade. Too much of the daily range has been eaten up (before the trade takes place) which leaves less room for it to move in our favor (based on the stocks usual tendencies). If the price is somewhat compressed in the morning, like a coiled spring, its possible to get some very big reward-to-risk ratios.

When trading with a reward-to-risk ratio of 3:1 or 4:1, even if you only win 30% of the time the strategy will be profitable. Click to enlarge charts.

In order for the trade signal to occur, you need to see at least three waves, the initial wave, a pullback, a move back to the prior high/low and then a move back toward the open (the Truncated Price Swing entry is more advanced, especially in a volatile stock near the opengotta be quick!). This gives you a chance to measure (quickly) how far the price has already moved.

If a signal occurs in the opposite direction, exit immediately and trade the new signal (or stick with your original trade, up to you). This occurred on May 4, the day prior. Our daily range is 7.1%. We get a buy signal. The price opens at $10.86, drops to $10.69, and then rallies to $11. When it pulls back, it creates a higher low and then moves through the open price again, triggering a long position.

That long position fails soon after, as the price creates a lower higher and then moves back to the daily open. Exit at the open, and initiate a short one cent below the open. The first trade is a wash (down a cent or two). The second trade has a risk of about $0.15, and an expected profit of about $0.62 (4:1).

We now assume the high of the day is in place at $11. Subtract the daily range ($0.77) from this to get a target of $10.23. The price moves down toward the target, but doesnt reach it. How you handle this situation is up to you. You can use another method or your analysis skills to concoct an exit, or you can just exit at the end of the day.

If you are an active trader you can have this strategy running on a stock (or other market) youre not actively trading (making money while youre off making money elsewhere), or you can be more actively involved. You have an idea of how far the price may run, but may opt to take multiple trades along the way instead of just one.

Problems with the Daily Range Day Trading Strategy

There are subjective elements to this strategy, and multiple ways to trade it. This is the basic idea, but you need to more precisely define how you will trade it.

We are using an average of the daily range, which means any given day could be very different from the average. Some days will move more than the average, and other days will move less. Also a few very volatile days, which arent typical, can skew the average, making you think it is bigger than it actually is.

Ideally, reduce the daily range slightly. Especially if you have a great reward-to-risk on the trade. By reducing the daily range slightly, this will move your profit target in, increasing the chance it will get hit. Doing so could have potentially gotten you out of the second trade discussed above. For example, you risked $0.15 so even using a $0.50 target (instead of $0.62) gives you a more than 3:1 to reward to risk. $0.50 subtracted from the entry price of $10.85 gives a target of $10.36and you would be out of the trade with a profit (went as low as $10.31). Of course, this is a personal choice. By doing this, you reduce the size of winners, but slightly improve the odds of your target being reached. You will need to find a balance that works for you.

We are making an assumption that the low or high of the day is made early in the day. This occurs quite often (or at least it serves as the high or low for much of the day), but is still an assumption. This is why we wait for another piece of evidence before taking a tradeanother price wave which comes up short of the prior high or low. See Trading Impulse and Corrective Waves .

It is possible this strategy could be used to make one big trade a day. If used more for informational purposes, once the initial trade signal occurs mark the expected daily range on your chart and take multiple trades within that area.

Averages will change slightly each day. This isnt usually a huge deal, but pay attention to recent price action when using averages. A 30 day average may say a stock is moving 6% daily, but you can see from looking at the chart that the average is dropping. It used to be 8% and the last few days have only moved 3 or 4%. Averages lag real changes, so stay on top of it, and if it looks like the average you are using is no longer accurate, then avoid using this method on that stock. Dont force a method because you want to trade it, or want to use the method on a particular stock. Only use the method if you are using a daily range average that seems solid for the current conditions.

Your stock selection process for this strategy—and how that stock aligns to the average daily range statistic you use—is just as important as how the strategy is implemented.

Being able to actually implement this strategy will take a lot of practice. These trades occur in fast market conditions, and you always have to be ready for what you will do next, before the market even does it (see How to Day Trade the Forex Market in 2 Hours or Less — the concepts apply to other markets as well). This is a basic outline of the strategyyou need to define how to make it yours.

Make sure the stock can handle the position size youre trading by viewing a Level II. We need to get in and out quickly so trade stocks that typically have liquidity at each level to allow for this. Slippage will occur on some trades.

Daily Range Day Trading Strategy Final Word

This method has multiple applications, not just the basic strategy discussed here. It seems easy, but practice it first, implementing your own personal guidelines for how you will trade it. You are making a lot of calculations on the fly, and in those initial minutes when the price is moving like crazy its easy to make a mistake, or get turned around and forget what you are looking for. I recommend trading this strategy with the big volatility stocks (see the high volatility stock screen article mentioned above).

A daily range average doesnt tell you how much a stock will actually move today . Some days the stock will move less, and some days it will move more than the average. The average is only a guideline for establishing areas where the price, on average, is likely to move to.

Over 300 pages, forex basics to get you started, 20+ forex trading strategies, how to create your trading plan for success.

Forex trading monitors

Forex trading monitorsMy Favorite Multi-Monitor Mobile Trading Setup

Article by: Matt Miller, Senior Trader

One of my favorite things about Day Trading the Forex Market is that it gives you the freedom to be 100% mobile. With technology today offering high speed internet and exceptional coverage it is becoming even easier to work from wherever you desire.

One thing I always found very cumbersome was the limited screen space of a tablet or small laptop. It can be very difficult to work with on a practical level when you are actively trading the markets. Maybe I have just gotten used to my 5 monitor office setup or my 6 monitor home setup. and get a little claustrophobic on only one screen.

Up until recently I have had to make due with one laptop screen or in most cases just stayed at the home office or the Trading Floor. But I have finally found a way to really trade comfortably on a Multi-Monitor Mobile Trading Setup from any location I have 4G internet connection.

See The Video Below

For The Monitors Visit mycinq/ and dont forget to use the FXTRADER coupon.

As you can see the possibilities are endless with a 100% mobile trading setup such as this. This gives me plenty of screen space to trade from my FxPM Software and listen in to the Live Online Trading Room with our community of traders.

Finding these mobile trading monitors couldnt have came at a better time, as the market has been giving us incredible opportunities (Click here To See Last Weeks Signals) and it has allowed me to trade comfortably from many great locations here on Miami Beach.

For those of you looking to take your trading business mobile I hope this was helpful, and I would love to hear your feedback below. And to those of you still looking for a reliable Step-By-Step Trading System I would strongly encourage you to Register For a Free Preview and see for yourself how our team of traders Generate a Full-Time Income Trading Part-Time Hours.

Happy Trading,

P. s. For those of you looking for a new way to visualize the Forex market and see trading opportunities that you may have otherwise missed, I invite you for a F ree Preview of the FxST Trading Program.

Join Me on my other Social Networks:

With everything done electronically you need a computer, and a good one. Good will change every few years. If you buy a mid-range computer today, youll likely need to replace it (for trading purposes) within five years to keep up with software advances.

The computer specific specifications you need will change over time. To stay current, or get into the right type of computer, visit a store that carries multiple computers, brands and models, and ask for an entry level gaming computer. Gaming computers typically have more RAM and faster processors, so you dont need to worry about the computer lagging or being able to run all the applications you need.

Any computer you buy should be able to support at least two monitors, preferably more.

Trading off a laptop is fine, especially if it is good one with a large screen. Make sure you can hook another monitor up to it and that it can handle the task again, ask for a gaming laptop. It wont be as powerful as the desktop, but if you travel and trade it is a viable second-choice.

High-Speed Internet

A high speed internet connection is a requirement for day traders. Without a high speed connection you will face a number of issues:

The price you see on the screen may not be accurate; with a slow connection or slow computer you will get lagging quotes. This is when the price on the exchange has changed but youre still looking at old prices. Even a second of lag (which is large) can mean the difference between being filled on your order or not.

Similar to the above, your orders take time to get the exchange. A slow connection means that data takes longer to get the exchange. This can mean increased slippage on market orders and potentially missing trades.

Youll likely be running other applications or monitoring some websites for day trading information. If your internet cant keep up with the data stream of these sites it may result in missing the information you need to act on in the moment.

Dont cheap out here. If you are going to be using market orders or removing liquidity to get into a position, you want a fast connection. Even if you only use limit orders, eventually you are going to need to remove liquidity to get out of a position in a hurry, and for that you want a high speed connection.

Multiple Monitors

Duel or triple-monitors make trading life much easier. Depending on how you set up your trading platform and your desktop, duel monitors will serve most day traders who only focus on a few stocks, futures or forex pairs. If you trade multiple assets and are always searching for action, three monitors (or even more) is a better choice. The extra monitors allow you to watch more charts and streaming data feeds from sites which monitor for breakouts, trade setups etc. 21-inch wide screens or bigger are ideal.

Desk and Chair

This one may seem like a no-brainer, but you need enough desk room to not feel cluttered while you trade; the more monitors you have (or eventually want) the bigger the desk youll need. Heres one place to save some money; a cheap or makeshift desk will work just as well as an expensive one. Drawers to store pens and paper for jotting down notes to yourself is ideal.

A lot of traders dont trade all day, but rather only a few hours of the trading day. Even so, get a chart that is comfortable to sit for several hours a day. You want to be focused on your trading, and not squirming around in an uncomfortable chair. Choose practicality over extravagance.

News Sources

Some traders want constant access to news. News sources vary, from providing macro global news stories to disseminating the latest stock specific news. There are paid news sites and free news sites; pricey doesnt necessarily mean better.

MarketWatch is usually quick to disseminate news, and sites like Yahoo! Finance syndicate content from multiple news sites—will often post relevant stories as quickly as paid sites. Benzinga disseminates news quickly, and Twitter has become a very quick way to stay in the loop although make sure the source is trustworthy.

TV channels like CNBC and Bloomberg are also viable sources for stock specific and global news.

Broker and Platform

Your physical space is set up, now you need to choose a broker. For day trading, commissions are important cheaper is better. At the same time, if your broker offers zero support to you when you need it (execution goes down or you have a power outage) one trade could end up costing you way more than you saved on the cheap commissions. Each market has its own brokers who specialize in it; if you want to trade forex ask active forex traders (look around on LinkedIn ) what they use. Same for futures or stocks.

The most important thing for a platform is quick execution. There is a very wide array of trading platforms, from simple to complex. If you are a new trader, simple and free is fine and works for many traders. If you want more advanced tools you may need to pay for a platform such as NinjaTrader. TradeStation or another platform.

Economic Calendar

A simple chunk of free information you must read before your trading day begins. If you are trading U. S. stocks or futures during regular trading hours, the free Bloomberg Economic Calendar should suffice, if you trade outside of U. S. market hours (or trade forex) youll want to monitor the global economic calendar, like the one available on DailyFX .

Day traders typically close out positions and step aside for high impact news releases and then jump back in after the release when a direction is established. Holding a position through a high impact news release means taking on an unknown, and potentially very large, risk.

Trade Ideas

Day traders have a vast universe of stocks to choose from. Narrowing that search down using websites or software is a common tactic. Finviz/elite provides a list of stocks meeting certain criteria in real-time, such as breakouts or unusual volume. Stockfetcher provides one of the most advanced stock screening tools available anywhere. Using both these sites (upgraded membership) will keep your cost under $50/month.

A free option is Twitter. Follow active day traders on Twitter to get loads of trade ideas throughout the day. Get the beat on what is starting to move, moving well or is breaking out.

A Mild Distraction

Trading isnt all action; it can actually be very boring when not much is going on. This is where having some of distraction can actually help you from making impulsive and low probability/low reward trades. Having some music or CNBC on in the background will give you something to listen to or watch during the quiet times.

Your primary focus is watching the market, so avoid anything that engages you so much that you stop doing your job. Instead of CNBC or music, you may decide to write in your trading journal during quiet times.

Trading Journal and Community

As you trade, keep a journal of how you perform each day, and any tendencies you notice. Write down what you did right and what you did wrong in terms of your trading plan. Did you trade how you planned to trade, or did you deviate? Why? By writing these things down you have a better chance of becoming more conscious of them in the moment and changing your habits.

Trading can also be a solitary endeavor. If possible, join a community of traders where you can discuss trading and seek help on any issues you have noted in your trading.

The Bottom Line

Getting set up as a trader is going to take some work, money and probably reaching out to a few current traders for some advice. The bare minimum is a having a good computer, high speed internet, at least one (preferably two or three) monitor, a competitive and quick response broker, trading platform and comfortable work environment. Monitor economic news releases, visit websites (or your platform) for trade ideas, find a mild distraction for quiet times and ideally join a trading community to help you reach your goals.

Understanding Forex Volatility

In the stock market, most people consider volatility a bad thing, as it typically increases as the stock market drops. In forex, volatility is simply how much a pair moves. Volatility can be monitored by the minute, hour, day, week or by longer time frames.

If one currency is rising that means the other currency in the pair is falling. For example, if the EUR / USD is rising, the euro is going up in value, and the U. S. dollar is going down in value (see Forex Trading 101 ).

Therefore, volatility doesnt have the bias it has in the stock market. Volatility can increase or decrease during both uptrends and downtrends in a currency pair, interchangeably. Volatility tendencies and changes in volatility tell us a lot about how we should be trading.

Hourly Volatility

Hourly volatility is most relevant to short-term forex traders, but isnt a major factor for forex investors.

The various global trading sessions affect volatility within the 24-hour period. Figure 1 shows major forex global trading sessions, in Greenwich Mean Time ( GMT ).

Figure 1. Several Global Forex Trading Sessions, GMT

A forex pair is typically most volatile when one or two of the markets associated with it are open for business. For example, the EUR / USD is most volatile and active when London and/or New York are open because these markets are associated with the EUR (euro) and USD (U. S. dollar).

Figure 2. EUR/USD Volatility by Hour of Day - 20 Week Average, GMT

Between 1300 and 1700 when both London and New York are open is when the EUR / USD experiences the most volatility.

Trend trading is likely to work better for day traders during the more volatile hours of the day, while more ranging type strategies work better when the volatility is lower and the major markets associated with the pair arent open to push it around.

Volatility changes over time, affecting the amount of pips a pair typically moves during certain hours of the day. Hour 12 may increase to see 40 pips of movement, or drop to only 19 pips, but generally its the most volatile hour of the day. Therefore, the hourly tendencies dont change very much, but the actual pip movements seen during those hours are constantly changing.

Day of the Week Volatility

Trading a certain pair you may find your 50 pip target is easy to hit on Thursday, but youre hard pressed to make 30 pips on a Monday. Each pair has different day-of-the-week tendencies; some days have half the volatility of others. If youre trading each day the exact say way, you may find a pattern of better or worse performance on certain days.

Looking at average volatility over the last 100 days, for example, each day of the week has its own average.

Figure 3. EUR/USD Volatility by Weekday (in pips) - 20 week average

Adjust expectations based on the day of the week. During this 20-week period for the EUR / USD a day trader could expect to make much more (due to the larger moves and more opportunity) Monday to Thursday, than they could expect to make on Friday or especially Sunday. Expectations also need to be tempered on a Monday, when compared to a Wednesday.

Long-Term Volatility

How much the pair has moved on average, per day, over the last several years tells us a lot about current market conditions, how much we should be trading, and even what is likely to happen with the pair in the future.

Figure 4. EUR/USD Average Daily Volatility (Over 10 Week Periods)

When volatility is near multi-year lows, there are fewer trading opportunities. Day traders and short-term traders should be more restricted in what they trade. Commissions and the spread (difference between bid and ask price) affect a trade much more when a pair is only moving 40 pips a day, compared to when its moving 120 pips per day. The cost to trade is the same, but the reward potential for that cost is lower (this is not a direct relationship though).

In Figure 4, near the start of 2014 there were fewer trading opportunities as volatility was contracting. During such times, trade more cautiously, as moves are likely to run out of steam quickly, and price action can be choppy. Come July, volatility began to pick up again, signaling a more trending environment where moves are more likely to extend and typically the trading is less choppy .

Sharp changes in volatility often accompany a trend change; this is because trends are often complacent and see declining volatility. Reversals change that. The status quo is shaken and complacent traders are forced to exit their trades quickly, or face major losses.

Volatility Adjusted Trading Methods

A fixed strategy, such as risking 20 pips to make 60 may work in some market conditions, but not others.

Consider using an indicator such as Average True Range. or monitor the volatility of forex pairs on a regular basis to establish what the proper stop loss and target levels are for current volatility. At times you may risk 10 pips to make 30 with a larger position size. and as volatility increases, you reduce your position size and risk 30 pips to make 90 (just as an example).

The Bottom Line

Volatility is more complex than how much a forex pair moves each day on average. By zeroing in we see volatility varies drastically, and consistently, across different hours of the day, days of the week, and over time. Monitor and adapt to these changes. Be aware of how volatility is measured, and constantly monitor it so you can adjust your expectations accordingly.

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Online trading for penny stocks

Online trading for penny stocksLearn to Trade

Investing and trading in penny stocks is not for the faint of heart. There are plenty of risks and plenty of duds in the marketplace. But there are also sizable potential rewards to be gained, if you are willing to do the research required to separate the growth prospects from the majority of penny stocks that will be left by the wayside.

This white paper is an introduction to the world of penny stocks – where it’s possible to make a bundle if you do your homework, stick to reliable sources of information, use proven investing and trading strategies, maintain a strict discipline in your trading, and have a high tolerance for the risks involved.

Introduction

Investing and trading in penny stocks is not for the faint of heart. There are plenty of risks and plenty of duds in the marketplace. But there are also sizable potential rewards to be gained, if you are willing to do the research required to separate the growth prospects from the majority of penny stocks that will be left by the wayside.

This white paper is an introduction to the world of penny stocks – where it’s possible to make a bundle if you do your homework, stick to reliable sources of information, use proven investing and trading strategies, maintain a strict discipline in your trading, and have a high tolerance for the risks involved.

Over the years, the penny stock market has received a lot of negative attention due to the fact that so many penny stocks are poor investments and generate a lot of losses. Most of the penny stocks in the market are poor performers, with weak products or strategies, or incompetent management. To make matters worse, the penny stock world is filled with promoters who are dedicated to pumping up the share prices of lackluster companies in order to make themselves and company management rich.

But there is a substantial upside to investing and trading in the right penny stocks – those destined to grow larger and prosper. These are the gems among all the worthless stones. Industry experts suggest that these success stories in the making represent just 5% to at most 10% of all the companies in the penny stock universe. They are waiting to be “discovered” by you through a commitment to due diligence and thorough research.

For those who are willing to do the hard work of identifying the growth stories, there is strong upside potential. This paper is an introduction to the potential upside of “getting it right.”

The Upsides of Penny Stock Investing

While the penny stock universe in general encompasses a significant amount of risk, there are some excellent penny stock values in the market. After all, the biggest names in industry, commerce and technology were once very small companies that leveraged excellent products and services to grow and become highly profitable. Similarly, some of today’s penny stocks are destined to become large and highly profitable in the years ahead. Getting in on the ground floor of one or more of these companies can bring you high rewards.

Investing and trading in the right penny stocks can be highly profitable. In contrast to investing in stocks with larger market capitalizations, the low price of penny stocks means that you can buy a large number of shares with a relatively small amount of money. And with the exponential growth potential of good penny stocks – a good penny stock can easily double, triple, quadruple or even more in price over a number of years – these stocks present the possibility of strong earnings for the investor who gets in and gets out at the right time.

In the rest of this paper, we will discuss the nature of penny stocks and the markets in which they trade. We will provide you with a brief description of the fundamental financial concepts you need to scrutinize and analyze a penny stock’s financial statements – the Balance Sheet and Income Statement.

We will discuss the impact of certain corporate developments on the company’s operations and on its sales, profits and growth.

We will also show you where you can get the most reliable information about a penny stock’s finances and operations; tell you about screening tools that can help you sort and filter penny stocks according your own investing criteria; and describe a number of the most important investing and trading strategies that are used by experienced penny stock traders to earn sizable profits.

After reading this paper, you will have a basic understanding of the penny stock marketplace, and where you can go for further information and research on identifying good penny stocks.

What is a Penny Stock?

Penny stocks are shares of companies that sell for very low prices. Prices may range from actually pennies a share – or even fractions of a penny — to as much as $5.00 a share, the traditional upper end of the penny stock price range.

The low prices are typically associated with very small companies. These may be companies that are very young, or that have not grown very much over time for a variety of reasons. The term penny stocks may also apply to older, more-established companies whose prices were at one point above $5.00 a share, but whose prices have fallen below that level.

Many people are attracted to penny stocks simply because of their low prices. Many small investors, who could not afford to buy a sizable number of shares of a larger company, can easily afford to purchase 100 or even 1,000 shares of a penny stock.

And even a relatively small dollar increase in a penny stock’s price can mean a sizable percentage return. For example, if a penny stock goes from $1 to $2, that’s a doubling or 100% return on the investment. By contrast, if a $25 or $50 stock increases by $1, the percentage increases are just 4% and 2%, respectively.

Many penny stocks are in the resource field – such as in oil field exploration and development, or gold, silver and uranium mining; or in the biotech or medical field. But there are also penny stocks in a wide range of other industries as well.

Penny stocks are also called micro-cap stocks, in reference to the size of their “market capitalization,” or the combined market value of the total number of the company’s outstanding shares. For example, a stock that sells for $2.00 a share and has 4 million shares outstanding has a total market capitalization of $8 million. By contrast, many of the largest companies in the world have market caps in the tens or hundreds of billions of dollars.

In addition to carrying low price tags and having low market capitalizations, penny stocks typically trade in low volume and tend to exhibit significant price volatility – i. e. there is likely to be substantial variability in their pricing pattern.

Because of their small size; the fact that many of these companies are in their early stages of development; and many are dependent on one or just a couple of lines of business, penny stocks are often subject to significant risks in terms of their future growth and profitability.

The risks are further compounded by the fact that many unscrupulous stock promoters operate in the penny stock arena, taking advantage of the lack of investing experience of many investors in this marketplace. Penny-stock blogs and free penny-stock newsletters are often the tools used by promoters of weak companies to entice inexperienced investors.

For the reasons discussed above, penny stocks in general have developed a negative reputation in the investment world – one that generalizes all penny stock investing as extremely speculative with a low risk-reward ratio.

The Upside Potential in Good Penny Stocks

But take heart. There is a significant upside to the penny stock story. There are many good penny stocks in the marketplace – those that have good products and services that meet the needs of their customers; are in growth industries or growth niches; have smart, experienced management teams; and solid strategies for future growth, including good strategic marketing plans.

That’s not to say that it’s easy to earn big returns on penny stocks. Quite the contrary, it is actually a tough proposition to select penny stocks that are going to make it big. In fact, the majority of penny stocks – perhaps over 90% by some estimates – are poor investments for a variety of reasons.

The trick for investors is to identify those relatively few penny stocks, from among the many thousands in the marketplace, that are likely to grow over time and earn a substantial percentage return on the investment.

To locate the gems among the penny stocks – and they are out there — you will have to do your homework, consult a variety of reliable sources, and maintain your knowledge base of information about the potentially highly profitable penny stock investments.

This report will provide you with a basic knowledge concerning the penny stock marketplace, and discuss research tools and sources that can help make you a good penny-stock investor – one who can potentially reap the rewards of investing in growth-oriented penny stocks that may eventually graduate to the world of small, mid-cap or even large-cap companies.

Where Do Penny Stocks Trade?

Penny stocks are traded both Over the Counter (OTC) and on exchanges. The OTC markets include the “Pink Sheets, the OTC-QB and the OTC-QX. Exchanges where penny stocks trade include the Over the Counter Bulletin Board (OTC-BB), The Toronto Stock Exchange (TSX) and the Toronto Venture Exchange (TSX-V). Some trade on the NASDAQ Stock Market and on the American Stock Exchange (AMEX). We will provide more information about these penny stock trading venues in the next section of this report.

Understanding the OTC Market

While some penny stocks trade on exchanges, like NASDAQ and the OTC Bulletin Board (OTC-BB), a significant majority trade on the Over the Counter (OTC) markets, which include the Pink Sheets, the OTC-QB and the OTC-QX.

First let’s talk about the penny stocks that trade on exchanges. That’s where the better stocks are traded. NASDAQ is a good place to find mid-range penny stocks – between $2.00 and $5.00 a share. This market has a high concentration of technology companies, both among the larger companies and among penny stocks, but the exchange also lists other types of companies as well.

NASDAQ has a variety of tiers, each with differing fees, potential exposure, and minimum share price requirements. Depending on the tier, in order to be listed on NASDAQ, the minimum share price at the time of listing ranges from $2.00 to $4.00 per share. While prices may dip below these levels at times, companies must maintain a $1.00 per share minimum price on an ongoing basis to remain listed.

If and when a company is “delisted” from NASDAQ, it is typically “demoted” to the OCT-BB, which is owned by NASDAQ. The OTC-BB is also an exchange, but with easier listing requirements than the parent NASDAQ, making it more appropriate for younger and/or smaller companies. But the OTC-BB still requires companies listed on it to regularly report their financial results.

Companies listed on the OTC-BB are generally legitimate stocks, and like other exchanges, the Bulletin Board is regulated by the Securities and Exchange Commission.

The OTC Markets

Stocks traded strictly over the counter are not listed and are instead sold over the phone, often by stock promoters. Once you purchase a penny stock over the counter, it will be up to you to find a buyer when you want to sell. This makes them even riskier than penny stocks listed on an exchange. However, that does not mean you shouldn’t buy penny stocks over the counter at all. But it does require additional research and the willingness to accept added riskiness in your investment portfolio.

The OTC markets — including the Pink Sheets, the QX, and the QB and others — are really stock markets, since transactions on these markets are conducted on a one-to-one basis – a buyer is purchasing directly from a seller. This type of transaction differs from trading on an exchange, where the price of a stock is based on all buyers and sellers coming together to ensure the best prices.

The OTC markets have different tiers, with the Pink Sheets basically having no listing requirements. The companies listed on the Pinks don’t even have to report financial data.

Companies that can meet stricter listing requirements (although still not very strict) – including reporting their financial results, can trade on the OTC-QB. If a company can meet somewhat higher reporting standards, they can move up to the OTC-QX.

While trading on the OTC markets is quite risky, often high-quality Canadian penny stocks traded on the Toronto Stock Exchange (TSX) and the Toronto Venture Exchange (TSX-V) also list on the Pink Sheets. This is done to make them more attractive to US investors. Such stocks may be somewhat less risky than other Pink Sheets stocks and thus more worthy of investor consideration.

Financial Fundamentals

You can’t invest or trade in penny stocks – or any stocks for that matter – without understanding the basic terminology that is used by investors, traders, analysts and the companies themselves in determining where they are, where they have been, and where they are going.

In this chapter, we will discuss some of these basics and see how they fit into the bigger picture of determining whether a particular stock is a good buy at its current price – and where the stock price is likely to go from here.

General Stock Indicators

Price-to-Earnings Ratio (P/E)

The P/E ratio is one of the very basic measures used in finance to determine the level of earnings power of a particular investment or company. P/E = Share Price/Earnings per Share (or EPS) over a 12-month period. It measures the price that investors are willing to pay at a particular time for each dollar of earnings.

A high P/E ratio may indicate that investors think the firm has good growth opportunities or that its earnings are relatively safe and therefore more valuable. In some cases, as in the dot-com boom, a high P/E may indicate over-exuberance about a company or an industry.

Typical P/Es of good, profitable companies are in the 12x-16x range, depending on the industry. Occasionally, however, as in the dot-com boom, P/E’s of many technology companies were running well above this range, until reality set in.

The objective of an investor is to buy a good company when the P/E is relatively low, and hope to ride the stock up as the company’s prospects become recognized in the marketplace.

Market Capitalization

Market capitalization is the value of a company’s stock in the marketplace at a given point in time. It is derived by multiplying the stock’s market price by the number of shares outstanding. A company with a stock price of $2 dollars a share and 5 million shares outstanding has a market cap of $2 x 5 million = $10 million.

Penny stocks are in the smallest category of market capitalization – often called microcap stocks. Other capitalization sizes are small-cap, mid-cap and large-cap, with the large-cap stocks, for example, having market capitalizations of up to hundreds of billions of dollars.

Outstanding Shares

The number of outstanding shares of a company is the number of shares that have been issued by the company and are owned and held by investors. There may also be outstanding shares that are held by the company as “treasury stock” and therefore not currently available to investors. Treasury shares may be used by the company for a variety of purposes, including using them to make acquisitions or to pay to executives as options. In many penny stock companies, a significant proportion of the outstanding shares may be held by management of the company.

Float is the total number of shares of a company that are publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares. For example, a company may have 10 million shares outstanding, but only 7 million are trading on the stock market. This company’s float would be 7 million. Stocks with smaller floats tend to be more volatile than those with larger floats.

Note that restricted stock or restricted securities refers to stock that is not fully transferable or tradable until certain conditions are met, such as a certain timeframe of two or three years. One type of restricted stock is a form of compensation granted by a company to its employees.

A company’s book value is what it is worth on its balance sheet. The calculation is Total Assets minus Total Liabilities. A company that is a viable growing business will always be worth more than its book value because of its ability to generate earnings and growth. Looking at a company’s book value appeals to value investors who look at the relationship to the stocks price by using the price-to-book ratio in addition to other measures, including P/E ratios to determine whether the company is a good buy. To compare book value for different companies, you can analyze them on the basis of book value per share, which is simply the book value divided by the number of outstanding shares.

Understanding the Income Statement

The purpose of the Income Statement is to show in financial terms what happened in the business operations of the company over a given period of time, usually quarterly and annually. Key breakdowns of an income statement are revenues (or sales); cost of goods sold; gross profit (the difference between revenues and cost of goods sold); and operating expenses, such as selling and administrative, office space rental, utilities costs, and a variety of other types of expenses. Taxes are also an expense of the business.

The difference between gross profit and total operating expenses and tax liabilities, if any, is the net income or net profit of the company.

There are many questions you need to look at when considering a company’s financial statements. For example, are revenues growing, and at what rate? If revenues on the Income Statement are stagnant or growing only slowly, you need to know why. If they are declining, it is probably a sign that this is not a good investment.

Are cost of goods sold under control, or are they growing faster than revenues? If they are growing faster, then gross profit will either be growing more slowly or declining.

You need to analyze the company’s operating expenses to see which are in line with the growth of sales, and which are growing more rapidly. If costs are growing too rapidly, the company may be looking at unstable profit patterns going forward.

Understanding the Balance Sheet

A company’s balance sheet describes in financial terms its assets and liabilities, as well as the equity ownership of the company.

The assets of the company are divided into current assets and long-term assets. Traditionally, current assets include cash or other assets that can be converted into cash within a year’s time. These would include, among other assets, accounts receivable, money market accounts, and inventory that will be sold within 12 months.

Long-term assets include items that have long-lived value and cannot be converted into cash within a year. These would include long-term investments; property, plant equipment; brands that have value; and intangibles, such as goodwill or the company’s reputation in the marketplace. Examples of long-term assets include company cars, factories, computers, the value of the company’s brand name or product brand names, and the value of any trademarks.

The total of Current Assets and Long-Term assets is Total Assets.

Liabilities and Shareholders’ Equity

The other side of the balance is called Liabilities and Shareholders’ Equity. Similar to the Assets side of the Balance Sheet, the Liabilities section is composed of Current Liabilities and Long-Term Liabilities. Current Liabilities are debt that will come due within a year, and includes categories such as accounts payable, royalty payment obligations, and short-term debt.

Long-Term Liabilities include such categories as long-term debt (payable in greater than a year’s time), future royalty payment obligations, and income taxes payable. The total of Current Liabilities and Long-Term Liabilities is Total Liabilities.

The Ownership Equity or Shareholders’ Equity section of the balance sheet provides details on categories of who has equity in the business, and how much they own. The total of Total Liabilities and Ownership Equity is always equal to the Total Assets figure.

Financial Analysis/Ratio Analysis

Figures on the balance sheet and income statement are used to analyze the company’s financial and operational condition. In particular, ratio analysis helps to determine how well or how poorly the company is doing, and also helps to compare its financial condition with other companies in the same industry and beyond.

There are many types of financial measures and ratios available to you to analyze the financial statements of a company. They can roughly be divided into the following categories: Leverage or Debt Ratios, Liquidity Ratios, Efficiency Ratios, Profitability Ratios, and Market-Value Ratios.

Leverage ratios indicate the degree to which a company is dependent on debt (as opposed to equity) to cover its business operations. For example, the debt ratio is the calculated as: (LT Debt +

Value of Leases)/(LT Debt + Leases + Equity).

Liquidity ratios measure a company’s relative ability to cover current operating costs and expenses. For example, the Current Ratio is measured as Current Assets/Current Liabilities. This ratio helps determine how much liquid assets the company has to cover its current liabilities.

Efficiency ratios measure how efficiently a company is using its assets. An example here is to Sales-to-Assets Ratio, which is calculated as Sales/Average Total Assets. Another example is Inventory Turnover, which is calculated as Cost of Goods Sold/Average Inventory. This latter ratio indicates how many times during a year does its inventory “turn over” or turn into sales. A good ratio in a particular industry might be between 4x-6x.

Profitability ratios are a very significant measure of how the company is doing. One well-known profitability ratio is Net Income/Total Sales. A company’s profitability ratio needs to be compared with those of other companies in its industry, since profitability varies not only among individual companies but among different industries.

Market value ratios indicate how well the company is doing in the marketplace. The P/E ratio is an example here. The Dividend Yield is another indicator. It is calculated as Dividend per Share/Stock Price.

Analyzing the Balance Sheet and Income Statement requires significant time and effort. But it is essential to do in order to be able to understand the company’s current and future prospects.

Understanding Corporate Developments

Any development that affects a penny stock company’s operations or its financial condition can be a catalyst for a change in the company’s fortunes and therefore for the stock’s price.

Such developments could include things that take place within a company, developments at a competitor firm, those that affect the industry in which the company operates; even developments at the economy-wide level could affect the company’s stock price.

Changing of the Guard

Significant and material developments at a company could include the appointment of a new chairman, CEO, or other senior executive; or the resignation of a CEO or senior executive. For example, a new CEO with a strong track record in the industry may be brought in as a response to flagging sales. That would likely be viewed as a positive development, and would therefore result in increased demand for the company’s shares and thus an increase in price.

The resignation of a weak CEO could also be a signal for an increased stock price. For example, an incompetent CEO may have put a poor business strategy in place, which may have led to stagnating or even declining sales. Even a well-liked CEO or other senior executive can ruin a company if he or she is not up to the job. An action taken by the board of directors to fire the CEO and replace him would likely be viewed by investors as a positive development.

If you are considering which penny stocks to invest in, you should familiarize yourself with who is in charge and what their leadership style tends to be. Decide how effective you expect their decisions and vision to be in terms of getting share prices to move higher.

When evaluating a new executive appointment, you should look at their past track record with other companies to see whether they will be good for their new company.

Ventures, Alliances and Partnerships

Another significant type of development that would have an impact on a company’s business and financials would be a joint venture, alliance or partnership with another firm. For example, if the company you’re considering investing in manufactures staplers and staples, and it establishes an alliance with a company that makes paper clips and related products, then this could create positive synergy for both companies.

A related type of event would be a merger of two companies that make complementary products, or an acquisition of one company by another. Typically, you would expect that such a merger or acquisition would be a positive for both companies. However, the price of the transaction may be viewed by investors as positive for one company and not quite as positive for the other company. It often happens that an acquired company’s stock price rises while the acquiring company’s stock price declines as a result of the transaction. That in part has to do with the evaluation of investors that the acquired company will benefit more from the deal than the acquirer; or that the acquiring company paid too much in the deal.

Other Developments That Could Impact the Stock Price

There are many other developments that can impact a penny stock’s price. A company’s quarterly financial reports are one example. Of course, financial results can be anticipated, based on industry talk, published reports, statements to the media press executives, etc. For companies that are followed by analysts, there may be research reports that project revenues and earnings. For example, if there are published forecasts of sales and earnings, a quarterly financial report that beats those expectations will most likely result in a rise in the stock’s price.

If a company announces the introduction of a new product or technology, this development may affect the stock’s price if investors deem it to be significant for the company’s future growth.

In another instance, if a company announces that it is developing a new medication for a particular illness, industry experts may be able to estimate the time when the product will be available on the market. If you’re interested in this company, you should follow industry reports. If you get in early and the product is successful, the stock’s price will rise.

Not all events or developments at a company will have a significant impact on its share price. For example, earnings that rise only a small percentage from one quarter to the next and do not meet expectations, may not have an impact on the price.

Developments in the Industry or Sector

Events that occur within the company’s industry, not necessary at the company itself, can also have a significant impact on the company’s stock price. For example, a new technology that is being developed at a competitor company could have a negative impact on the first company’s stock price.

On the other hand, if the outlook for the industry as a whole is positive, then the company’s price is likely to benefit from such an outlook. But you have to be in the stock early – before that positive outlook is generally recognized – in order to reap the benefit.

Many companies generate their own outlook for the industry, in order to guide their activities as they move forward. These industry forecasts tend to be positive about the industry and about the impact on their own company. For example, a uranium mining company may project a rising demand for nuclear energy and therefore demand for uranium, or a forestry company could forecast growth in homebuilding in their region. The optimism embedded in these forecasts may not necessarily reflect inaccurate or misleading information, but more likely they represent a more optimistic interpretation of the facts at hand.

Industry outlooks are also prepared by analysts who cover the industry or sector; outside analysts tend to be more objective in their projections than the companies themselves. Major brokerage firms and investment banks typically employ analysts who focus on specific industries. For example, one analyst may be extremely knowledgeable about Internet technology and the major companies in that industry. Another may follow the metals industries, or the banking industry, or oil gas. They may produce industry outlooks, either for internal use or for distribution to key clients. However, many penny stocks have little or no brokerage industry coverage – though some employ analysts directly to paint a rosy picture of the company. Such paid research reports need to be taken with a healthy dose of skepticism.

You can also develop your own outlook for industries in which you wish to invest. By reading trade publications, the major business publications, and major newspapers and magazines, as well as conducting your own Internet research, you can develop a good understanding of likely developments in specific industries and sectors.

Whether you foresee positive developments and become optimistic about an industry or sector, or if you see warning signs of slowing growth, continued research on your part will help you make good decisions about whether to invest in a particular company.

Research Tools

To achieve any kind of success in trading penny stocks, doing your homework is essential. Because such a large proportion of penny stocks are weak and problematic, you need to do significant research to find the gems from among the much larger number of poor investments in the marketplace.

While in the past there were only a few sources of information on penny stocks, there is so much more information available today to anyone with an Internet connection. However, much of the information, and especially recommendations, available in cyberspace are worth very little. Indeed, much is published by unscrupulous stock promoters – and is often designed to lure you into investing in a worthless stock. So it pays for you to know where you can find reliable and objective information about any penny stock that you are considering purchasing.

Doing your research is also known as conducting “due diligence” – a term that is used in a wide range of situations in the financial world and beyond. Conducting due diligence on a company involves assessing timely and reliable information about that company in order to determine the company’s potential future operational performance, financial results and stock price. The better your research is, the greater the probability that you will be successful in penny-stock trading.

If you’re looking at penny stocks that trade on one of the exchanges, then you’ll be able to obtain the company’s financial results on a quarterly basis. The financials provide valuable numerical information about the company’s business operations, its revenues, profits, and a wide range of additional metrics.

In addition, like their larger counterparts, penny stock companies will often release information to the public and the press about new product introductions, senior level executive appointments, new contracts and clients, etc.

Of course, you won’t find nearly as much information about penny stocks as you will about higher-priced stocks that are followed by many securities analysts.

Where to Find Reliable Penny Stock Information

There is a lot of information about penny stocks in the marketplace. Unfortunately, much of it is unreliable and/or misleading. That includes a large number of free penny stock newsletters, which are often biased and designed to get you to invest in weak companies.

There is, however, reliable information available on penny stocks. Some of the more reliable websites are affiliated with name-brand news, finance and search organizations. These include Google Finance (google/finance); Yahoo Finance (finance. yahoo), Investopedia, Marketwatch, and Bloomberg. Some of these sites include a stock screener that enables you to narrow your search for appropriate penny stocks based on your own trading and investing criteria. Google Finance, for example, includes financial, business and economic news; stock and global index quotes; and a stock screener. Yahoo Finance covers similar information.

MarketWatch, owned by News Corp. which also owns The Wall Street Journal, provides a wide range of information including financial and business news, stock quotes, market analysis, economy-wide news, and a stock screener.

Bloomberg is another broad-based website that provides a wide range of business, financial and economic news; market news and data; and stock quotes.

Investopedia, has an investment and Wall Street-related dictionary, a “Penny Stock of the Day,” a stock simulator, and sections on investing news, personal finance, active trading, trading strategies, trading software and other information and tools

Two other sites worth mentioning are stockwatch and stockfetcher. There are also many stock screeners with even more advanced features, including some with technical analysis capabilities, that are available for a fee.

Pros and Cons of Stock Screeners

Stock screeners like the ones mentioned above can help you find stocks that meet investment and trading criteria that you set for yourself. They help you refine the thousands of potential penny stock investments down to hundreds, a few dozen, or even fewer, based on parameters that you input to the system.

For example, you can set the screener to show you stocks priced between $2 and $3 a share, in specific industries or sectors. The screener will then show you only those that meet your criteria, while eliminating the others.

While they can help you whittle down the huge penny stock universe to a focused few, stock screeners do have their limitations. Screeners can sort and assess only by data available about the shares of a company – e. g. the share price, P/E ratio, market capitalization, industry group, trading volume, etc. They can’t sort or eliminate stocks based on data other than that directly related to the stock itself. Anything related to the operations of the underlying companies is beyond the scope of a screener.

What Stock Screeners Won’t Tell You

As helpful as screeners are for refining your research, there are many things they won’t tell you. That includes the effectiveness of current management; what’s going on at competitor companies; new technologies that are being developed; new competition in the marketplace; lawsuits filed against a company; overall developments within the company’s industry; and a lot more.

Therefore, in order to become a successful penny stock investor and trader, you will need to conduct due diligence on any company in which you may wish to invest. You will need to do fundamental research, including consulting as many sources of information about the company, its industry, and its competitors as possible — both domestically and overseas. It is a laborious and time-consuming job, but it must be done if you are going to have the best chance to profit from penny stock trading.

Penny Stock Investing Strategies

There are a wide variety of strategies for successfully trading penny stocks. Each has both its pluses and minuses. Here we will discuss a number of important strategies, including both their potential upsides and downsides.

Dollar Cost Averaging

Many investors, especially those new to the penny stock arena, think that to make a significant profit in trading they need to buy or sell shares all at once. Although this strategy tends to minimize broker commissions, there are many more disadvantages than advantages to this strategy.

A better approach, for a variety of reasons, is Dollar Cost Averaging (DCA). Penny stocks can be very volatile and unpredictable. To avoid the short-term ups and downs in many penny stocks, investors can benefit by using DCA. This is the process of buying additional shares of the stock at set intervals, regardless of the share price activity, rather than buying all the shares at one time.

In DCA, more shares are purchased when prices are low, and fewer shares are bought when prices are high. This strategy lessens the risk of investing a large amount in a single investment at the wrong time. Your average price is lower than it might otherwise be if you bought all the shares when the price was at its peak. You still get some of the upside, but you avoid the bigger risk of buying all the shares at their highest prices.

One downside to DCA is the fact that it increases the commission cost you must pay to your broker, since each transaction requires you to pay a new commission. However, the benefits in reduced risk typically outweigh the commission cost.

Penny Stocks and Reverse Mergers

You should also be on the lookout for penny stocks that have become public through a “reverse merger” and that meet your trading and investment criteria.

In a reverse merger, a public company – typically with little or no assets — acquires a private company that does have assets, personnel and operations. The private company has in effect merged with the public company and taken it over, and is now publicly traded. This is an easy way for a private company to go public, since the private company does not have to go through the traditional IPO registration process.

Penny stocks that have done a reverse merger can sometimes be a good buy and result in an increase in the penny stock’s share value.

Here’s an example of how it can work. Private company ABC Company has earnings of $5 million and wants to go public. ABC is put in touch with a shell company that is willing to give ABC a majority of the shell’s stock in exchange for owning a small stake in the post-merger company. The public shell acquires ABC for 10 cents a share. After the merger is finalized, the reverse-mergered company issues a press release saying that the private company has become public, that the management team remains in place, and that the company has a growth story to tell.

Investors then recognize that this previously worthless penny stock shell company now owns a growing company with $5 million in earnings. Assuming the company has 10,000,000 outstanding shares, this translates to earnings of 50 cents a share. If the growth story is valid, the stock could move much higher, since there may now be considerable investor interest in buying shares of the company.

Of course, this is hypothetical, and it doesn’t always work out that way. Investors who get in after the reverse merger are not guaranteed that the stock price will go up. If the newly public company does not do well, the stock price will decline and investors will lose money.

Therefore, as in any other investing strategy, you need to look at the company’s fundamentals, its outlook, and the outlook for the industry in which it competes, among other factors.

Stop-Loss Orders

Stop-loss orders limit your downside while preserving the upside. They are preset sell orders that are triggered if the stock falls to a certain percentage below your purchase price. Stop-loss orders can protect you from shares that fall significantly and quickly, while keeping your investments open to a potential big upside. Some brokers will let you set up automated stop-loss orders on some penny stocks. In this case, the stock is put up for sale as soon as it hits your stop price.

If you can’t set up an automatic stop-loss, you can have a “mental” stop-loss order, where you have a trigger price in mind and sell when the shares fall to that level. However, this is very difficult for many investors to do. They get attached to the stock, even if it is not doing well – in the hopes that it will turn around. Some investors try to rationalize their way out of making the sale, and others justify reasons to keep the investment. For stop-loss orders to be of any value as an investment strategy, however, you need to stick with the strategy. Otherwise, you won’t gain the benefits of the strategy, and may be putting yourself at financial risk.

Position Sizing

Position sizing is one of the most powerful, yet often misunderstood methods for protecting your portfolio. This strategy involves limiting each individual purchase to a predetermined percentage of your portfolio. For example, if you have a $20,000 portfolio, you may decide to limit your largest purchase to $1,000, or 5% of your portfolio. This strategy limits your upside, but it also insulates you significantly from downside in any one investment.

Position sizing works well for larger portfolios. For example, a trader with a $300,000 portfolio may benefit by buying only up to $5,000 worth of an individual stock, meaning he could buy 60 or more different stocks, risking only a small portion of his portfolio on any single stock.

Smaller portfolios don’t work as well with position sizing. For example, if you only have $2,000 to invest, there is no point in dividing it up among ten penny stocks. The commissions alone would be prohibitive.

Timing Your Trades – When to Take a Profit and When to Sell at a Loss

Whether you’re sitting on a gain or a loss on any penny stock at a particular time, there are good strategies to let you know if you should sell.

Taking Your Profit

If your stock is currently up significantly from your purchase price, there are some good reasons why you would want to sell and take your profit. The most obvious is that you are locking in your gains. Any time that shares are trading much higher than what you paid for them, you may want to lock in your gains, rather than take the risk that the stock could go back down again.

If the outlook for the stock is unfavorable, and your analysis indicates that the company will likely be in trouble soon, you would certainly do better to take your profits now. If you are proven wrong and the stock goes higher, you have still made some profit.

Another indicator that you should sell is if shares are trading higher, but you then see a marked drop-off in trading volume. This may indicate that the stock price is also going to fall, as market rumors may be suggesting a problem at the company, for example. Most stock price increases occur when there is a high level of investor activity. If that changes, the price often fails to hold up.

Taking Your Loss

You should also know when to take your losses and move on. Selling at a loss is one of the hardest things for investors to do. However, you’ll be more profitable overall by strategically selling your losing shares if there is little hope for a turnaround. Due to the risky nature of penny stocks, it is important to understand what is happening at the company if its stock price declines.

There are some good reasons to sell your stock and take your losses. One is when the price hits your stop-loss price. Selling at that point will maintain your trading strategy and discipline, and help you to minimize potential further losses.

Another example can occur when trading volume increases as share prices decline. This situation could represent a stampede out of the stock. Further, trading volume that drops to a fraction of its 3- or 6-month average indicates a significant decline in investor interest, meaning the stock is likely to fall further.

Additionally, if you were expecting a specific event or development to boost the shares of the company, but the development did not help the stock much or at all, you should re-evaluate the situation and determine if there is anything else that might help the stock recover. If not, then you should sell.

Conclusion

This white paper was designed to introduce you to the world of penny stock investing and trading. It’s a marketplace that encompasses big risks but also big potential upsides.

First, we discussed in broad terms how a penny stock is generally defined – mainly stocks that trade for $5 per share or less. They are also called microcap stocks (for micro-capitalization, as opposed to small - mid - or large-caps). They tend to be young companies, but some have been around for quite a while. Penny stocks tend to be concentrated in the resource area, in technology, and in startup medical and biotech products, but there are many penny stocks in other industries as well.

We discussed the markets on which penny stocks trade – the strictly OTC markets, as well as the exchanges on which they trade. The exchanges include NASDAQ and the OTC-BB.

We discussed the financial fundamentals involved in analyzing a company’s business through its financial statements. Another chapter provides you with information about where you can conduct your research to find credible and reliable information on penny stocks. It also tells you about stock screeners that enable you to cull and isolate penny stocks according to your own individual financial parameters.

We also discussed how certain corporate developments – e. g. the appointment of a new CEO or other top executive, a merger or acquisition, or the introduction of a new product – can impact a company’s operations, growth and financial position.

Finally, we discussed a range of major trading strategies used by successful penny stock traders to generate sizable trading profits. These include dollar cost averaging, investing in reverse mergers, stop-loss orders, position sizing, and the timing of taking profits and losses.

This primer on penny stock investing should help you begin to navigate the risky world of penny stocks. The penny stock marketplace continues to be one where there are many more problem companies than good ones; where one has to be wary of stock promoters, stock tips and free penny stock newsletters – whether on paper or online; and where you have to do your homework in order to make a profit. This is a high-risk market, where only those who are equipped with good research from trustworthy and reliable sources, can even hope to make a dollar from trading activities.

If you conduct yourself based on the principles and advice given here, you can reap significant benefits in penny stock investing and trading.

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