What do you think of microcap investing?

[djs13]

I've done a few searches for penny stocks on this forum but I couldn't come up with much. I was wondering why there isn't too much talk on this subject?

I've read a few books on microcap investing and the OTCBB/Pink Sheets and I've learned that although many companies are very shady, some serious money has been made this way.

Is microcap investing fastlane or is it just a scam? As a college student with limited income but a decent amount of time, would it be wise to leverage what I have and learn about penny stocks? It seems like the NASDAQ/NYSE isn't a fastlane option for my situation.

 

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[MJ DeMarco]

I'd stay away big time. I think you'd have better odds in Vegas. There's a reason why they are PinkShits, err, I mean PinkSheets. The folks who are making the money (the drivers) are the folks selling the stock (the founders) not usually the buyers (the stockholders) ... the lowest microcap I'd go is the NASDAQ small cap.

 

[Bond]

Not to mention volume... Easy to get in, hard to get out....

 

[Jonleehacker]

Your assumption that penny stocks are better because you don't have a lot of capital is flawed. You'd be must better off buying less shares of stocks that respond in more predicatable patterns... you'll probably lose money either way, but at least with the latter, you will be learning.

That said, http://www.timothysykes.com/ did come up with a brillant way of making money by shorting penny stocks that were be promoted by "pump and dump" scams...

 

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[GlobalWealth]

I've done a few searches for penny stocks on this forum but I couldn't come up with much. I was wondering why there isn't too much talk on this subject?

I've read a few books on microcap investing and the OTCBB/Pink Sheets and I've learned that although many companies are very shady, some serious money has been made this way.

Is microcap investing fastlane or is it just a scam? As a college student with limited income but a decent amount of time, would it be wise to leverage what I have and learn about penny stocks? It seems like the NASDAQ/NYSE isn't a fastlane option for my situation.

I was up over 100% in 2009 with mostly large caps, about 19% ytd on mostly large caps. Not fastlane?

 

[MJ DeMarco]

User "lightning" here has had some success with microcaps, you might want to PM him. Our reality doesn't have to be yours!

 

[max momo]

TIme is a wonderful ally

Thanks to time I had in 10 years ago (but no longer have) I was able to learn ONE particular industry well: mining. Since I know the industry (enough to trade/invest) I can buy the microcaps b.c. I know EXACTLY what to look for and EXACTLY what to avoid.

Without that specific knowledge base I surmise trading microcaps has too much risk for the reward.

But, knowledge is - indeed - power.

(Look at what the silver microcaps have done over the past 9 - 15 months!)

 

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[Guest3722A]

In reference to penny stocks and in my years of frequenting the various stock message boards that have come and gone, there was this one trader that I ran across maybe 10-12 years ago who was exceptional at calling big moves in pennies. He knew exactly when to get in and knew exactly when to get out.

This skill takes a while to develop but I have seen it done. This is short term trading though usually less than a day to maybe 3 or 4 days.

Also as I'm sure you've noticed, there are a lot of ads out there advertising massive 1000+ % gains from trading pennies but the problem with all of the ads you may see around is that many (not all) of the guys doing the advertising take the opposite side of the trade knowing that they're roping in 'dumb money' and when the bubble pops they collect a nice paycheck.

Many newbies to trading I've noticed do start with the thought that since they don't have much money they need to get into things that are cheaper like pennies but as GlobalWealth mentioned, he was up over 100% on large caps last year. Well, 100% of $100 is 100% no matter where you got it from. And a large cap is a company that for the most part is proven to be a worthwhile investment. Things do change though with various stocks and sectors so research would be required.

Anyway, if your focus is currently on learning to trade pennies, my humble suggestion here would be for you to find ten or twenty penny stocks that have made moves that you like and then find out what caused these moves.

Then do it again, and again and again until you have identified a pattern that you would feel comfortable with the probabilities being weighed heavier on your developed assumptions. Teach yourself the best time to get in and more importantly the best time to get out at a gain and MOST importantly the best time to get out at a loss.

At this point, you are dealing with your personal comfort levels and how you respond to different situations. In the game of trading, most every trading situation is going to be different with different results so understanding who you are is really important here especially in developing your personal edge.

The fact is that you're going to have losing trades and you need to be able to accept this which then takes us to the point of if a penny trade goes against you, it most likely is going to drop more than a penny so now we're not going to be looking at pennies lost, we're going to be looking at percentages lost. If however you had a stock that was trading at much higher levels, a penny, dime, quarter or even a dollar lost can be easier to get through because the percentage lost isn't as great.

Really what I would suggest for anyone starting with trading though would be to read about the experiences and learning curves of successful traders. Anything from Schwager's Market Wizards books I believe would help here.

Last, and I really do think that this is as important if not more important is understanding successful trader psychology and how to develop it. The book "Trading in the Zone" by Mark Douglas is a classic and also my suggestion, and highly recommended by several other traders.

 

[Guest3722A]

Here's a penny stock that I've been watching for almost a year now. The company is US Oil Gas : USOG trading at less than a penny. Recently it started getting some volume spikes and has gone up.






From this point who knows where it'll go but for one to watch and observe, this chart will update daily:

 

[Jonleehacker]

Don't you love penny stocks: USOG drops -0.0005 (5/100th's of a penny) and it's down 20%!

 

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[Guest3722A]

Yup, 20% loss in the blink of an eye.

What's interesting too is that the MACD tried to break down but it held support prior to the move. The dmi currently broke support as i type this so I'm interested to see what happens over the next couple days. Volume was also way down today at 1/4 of yesterday.

Something else to take into consideration here is the spread .002/.0021.

 

[CommonCents]

If you're seeing a spike in news about particular stock, be wary as it will probably be too late. Often the best times to get in are in the quiet periods as the pump and dump crowd are slowly accumulating a position.

This happens with many stocks in terms of the retail investor. By the time you hear something on CNBS etc...it's too late.

Buy the rumor, sell the fact, they say.

 

[Guest3722A]

So true.

 

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[CommonCents]

"Blue Horseshoe loves Anacott Steel!"

 

[CommonCents]

Case in point:

Blue Horseshoe loves Wi Lan (WILIF). Been makin a run lately. They are patent trolls for Wimax and just initiated various lawsuits. I'll be selling half position on the rumors and hype soon

 

[Guest3722A]

it looks to me like it's momentum is moderately slowing too. are you comfortable with the volume?

 

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[CommonCents]

there is nothing comfortable about this one. Plenty of manipulation going on w/ broker dealers. They do seem to be making some headway in getting license revenue from companies that use wimax and its just now starting to roll out. I'll be selling half and be playin with the house's money.

As you know, this was more of an example of the way stocks work. By the time the news is out its wayyy too late. The time to be buying is when everyone on the stock boards are complaining that nothing is happening. However you get many people talking to their friends and colleagues now saying, Hey WiLan is going places, I just read blah blah blah, I think I might buy some.

Especially w/ small/micro caps. It doesn't take much vol to impact the price greatly, hence the volatility and risk. Inside information and front running happens all the time, it just can be more evident in smaller floats.

I wonder if there is a tool that tracks the frequency, timing and then screens all press releases and news stories of stocks? Might be a reliable indicator.

 

[MJ DeMarco]

Apparently the guy on CHIPS (80's drama) like investing in microcaps too...

CHiPs star charged by SEC for kickback scheme - MarketWatch

 

[Guest3722A]

Apparently the guy on CHIPS (80's drama) like investing in microcaps too...

CHiPs star charged by SEC for kickback scheme - MarketWatch

Wow. I don't know what to think about this. I'd be interested to hear the whole story.

 

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[Guest3722A]

Here's a bank stock from Michigan that has been troubled for a while. It's market cap is definitely small at I think around 300 million and correct me if I'm wrong but I'm pretty sure it did a reverse split a while back because I remember it trading below a dollar.

Anyway, they just came out with news that they were opening up a commercial loan division for small businesses a couple days ago.

What I like about the news is that in Michigan with all of these displaced autoworkers many of them are looking to entrepreneurial lifestyle changes because their reality is that they are having a hard time finding another job that will pay $35+ an hour to tighten bolts.

The stock however has a lot of red to dig it's way out of and traders apparently are in control and they did break it up and out of it's 5 month down trend so now the question is will it be enough to change the trend.

On a side note, the owner of this bank owns the largest house in Michigan...

 

[Jonleehacker]

Here's a penny stock that I've been watching for almost a year now. The company is US Oil Gas : USOG trading at less than a penny. Recently it started getting some volume spikes and has gone up.

From this point who knows where it'll go but for one to watch and observe, this chart will update daily:

Nice call on this one, up 55% today, hope you got in.

 

[Guest3722A]

No i didn't. If I had more to play with I might have.

I think it may have peaked out at 100% gain for the day before profit taking came in. With today's volume on it, it will be interesting to see if tomorrow will provide a follow through.

 

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[Guest3722A]

usog blasted off ...

so... some volume spikes... some macd support... some strong dmi action...


(maybe shoulda put some MAs on it? naaaa... heh heh)

 

[Jonleehacker]

usog blasted off ...

so... some volume spikes... some macd support... some strong dmi action...

ya, amazing. I watched it every day since you posted. Definitely had a nice chart pattern, but it didn't fit in with my trading plan, so I let it pass... trying to work on more discipline, but I was so tempted to put a couple hundred bucks on it for fun.

 

[Guest3722A]

same here. and I've watched so many get away because of lack of funds. but if I recall the words of the penny trader from a few years back, he would know when they were gonna turn too so at least, I can learn from this and hopefully dj13 is watching.

still from my standpoint though, I would avoid pinksheets until I have more of a foundation.

Have you still been watching MSB? Since we were talking about it a couple months ago I believe it's up almost 100%.

that other one I pm'ed 'VLTR' has been a disappointment though.

 

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[Jonleehacker]

I've been watching MSB, I may enter on it tomorrow. It is almost a perfect setup for my trend following system... just scoring it as we speak.

:coffee:

 

[JohnMathew]

Penny Stocks

There are currently three options available for investors who are looking to invest in the micro cap market. While similar in some ways, these ETFs also have some big differences, such as allocation strategies. Despite the risks associated with this asset type, all three have offered a great deal of stability in their returns and offer investors a chance to further diversify their equity holdings without greatly expanding their risk.

 

[MarcelBracken]

Penny Stocks

Microcap Stock is low priced stocks issued by the smallest of companies. Companies with low or micro capitalization typically have limited assets and a small total market value. Many microcap stocks trade in small volumes in the over the counter (OTC) market, with prices quoted on the OTC Bulletin Board or Pink Sheets.


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[wallstreet]

I trade them all the time. Turned 200 bucks into 5k within a year that way. Only added 700 dollars of extra money to my line. However, trading is my passion I'm obsessed with it.

Also I see you said "investing" please change that to trading. 97% of the companies will lose 50% of their value within a year.

To trade penny stocks you need to understand how the system works. Understand the "seasons of liquidity" and master the ebb and flow of the pump and dump.