Tag Archives: technicalanalysis

OTC QB UPtrend & TA Cheat Sheet

May 2, 2015

The OTC (over the counter) exchange is like the Wild West of stock trading. It’s below the big U.S. NYSE and NASDAQ markets and companies on the OTC have more lenient reporting standards.

After penny trading for a year with a start in April 2013, and practicing paper and virtual trading a year before that, I’ve developed a penny stock trading strategy called UPtrend. It means I trade upward price movements to garner gains while not short selling. The ultimate goal is to capture 20-50% gains, called the greed line, each trade.

This strategy suits those with cash trading accounts. The idea is to find tickers that will have an uptrend for a week+ allowing the trader to meet T+3 clearing.

This doesn’t mean you can’t use the UPtrend strategy to day trade. Charting analysis in the 5min/1day and 15min/5 day become critical as a day trader tries to garner quick gains. Criteria listed below would just need to change to shorter periods and more recent or rumor based hype.

UPtrend Strategy:

+ 2-3 day uptrend minimum

+ Recent PRs from company

+ TA with PSAR of buy signal, 30+ ADX with +DM above -DM, and CCI above 0 or oversold below -100.

+ Positive ticker board presence on social trading mediums like iHub.

QBs are generally audited and have recent financial filings. I find QBs to have less risk of loss versus Pink Sheet tickers while still seeing quick results. I’ll want to hold an OTC ticker no longer than a month, because OTC ticker’ time moves faster than with ANN penny stock tickers.

I feel trading tickers with these minimum requirements hedges my trading risk for losses. Towards the end I discuss additional DD I may perform to feel better about my trade.

Strategy In-Depth

UPtrend Chart

Here’s an example of possible UPtrend charts:

Charts are from 5/1/15

News and PRs

A great resource for PR search is Quote Media. We’ll use $MNTR as an example ticker to research. MNTR was an OTC QB ticker I traded in 2013 during my winning streak. I saved my notes and will use in analysis here. Do a ticker search and get: $MNTR news.

Because no Revenue has been filed yet we want to read PRs for indications of Revenue in the future. The PRs issued in 2014 indicate 60% of Bhang Chocolate was acquired for $39 million value and $5 million was acquired as a line of credit. An Internet search on Bhang Chocolate reveals Revenue being generated through chocolate sales. MNTR also announced MMJ industry funding will be had by issuing preferred shares at $7/share, and naked short selling issues as an explanation for the pps correction.

The news is very rosy for Mentor Capital.

TA Cheat Sheet

I’m going to add a quick cheat sheet of momentum and other indicators and the values I expect. First, you need to know what oversold and overbought mean. Oversold means chart indicators are pointing to too many traders have sold and the trend will reverse soon. Overbought means the opposite with too many buyers having bought making the pps uptrend unsustainable with correction expected soon. Some use only 1 or 2 indicators solely, while I like to use many for a “stars align” feeling.

I mainly utilize PSAR, DMI with ADX, and CCI TA indicators to save time.

Candlestick pps presentation shows the opening and closing pps info as well as the day’s pps range.

Volume. It is said volume proceeds price, unless everyone is selling…

MA = Moving average. You want a smaller day MA to be crossing or over a larger day MA. Such as the 8MA over the 32MA.

BBs = Bollinger Bands. The tighter the bands the more it is expected a pps uptrend will occur. Pps candles trading above the dotted neutral line is bullish (buy) while riding below is bearish (sell). Pps candles riding above the upper BB means overbought. Pps candles riding below the lower BB means oversold.

PSAR = Parabolic SAR. A PSAR dot below a pps candle signals buy while a dot above signals sell.

Ichimoku Cloud = pps estimated movement. Pps candles above clouds signals buy, below clouds signals sell, and riding in clouds signal flat trading estimation. Green clouds are based on 26 and 9 MAs and move faster than red clouds which are based on 52 week MAs. Cloud movements of green (support) and red (resistance) can note trend reversals. This is a complex overlay that a trader could devote trades solely off of.

ADX/DMI = Average Directional Index with Directional Movement Indicator. A more sophisticated indicator, ADX tells a chartist if a trend is weak (below 30) or strong (above 30) while making sure the +DM is on an uptrend and above the -DM to signal a buy trend.

CCI = Commodity Channel Index. Values above 0 signal buy. Oversold is a value below -100 while overbought is signaled with values above +100.

RSI = Relative Strength Index. Values above 50 mean buy. Values above 70 mean overbought while values below 30 signal oversold.

CMF = Chaiken Money Flow. Bars above the neutral line signal buyer pressure while bars below signal seller pressure.

MACD = Moving Average Divergence/Convergence. Looking for the MACD line to be above the MA line and rising above the threshold bars signals a strong ow Index. Values above 50 mean buy. Values above 80 mean overbought while values below 20 signal oversold.

OBV = On Balance Volume. Said to indicate large buying volume. This indicator should be uptrending to signal many buyers are holding versus selling occurring. Similar to Acc/Dist.

ROC = Rate of change. Basically, an uptrend above 0% signals buyer pressure.

The general rule I use with all of these indicators is to see an UPtrend in the lines or trend lines, except PSAR. You will want to look at charts from 3-Month and 6-Month to see how strong the trends have been in the past with a chart to isolate those indicators that haven’t been reliable in the past periods.

I recommend becoming very familiar with each chart indicator one at a time. As you become familiar with each you can utilize more or less according to historical trends, your comfort level, and various situations such as news springing from the company. A few situations will render chart reading obsolete for a day or week: A large group is alerted to enter a ticker; the company issues positive business news; a major contract is signed; a large shareholder decides to exit; and etc.

Here are a series of 6-Month charts on MNTR with my TA from the cheat sheet above.

This first chart shows a 200 and 50 MA with PSAR overlay over a candlestick chart. RSI, MACD, CMF, and volume are included. On 1/21/14 you can see the 50 MA crossed above the 200 MA, and the pps went on a strong uptrend.

The PSAR has been a good indicator of buy over the mid-term despite mini pps corrections along the uptrend from 1/21 to 3/14/14. The PSAR can lag a day or two as evidenced by the PSAR dots above the candles 3/14 when the downtrend really started 3/17, but when PSAR moved up the candles the sell signal was right.

Note how the candles were just touching the 200 MA on 4/10/14, and this bounce off the 200 MA on 4/11 is a very bullish indicator.

The RSI signaled oversold with a value below 30 on 4/10/14. Notice the large candle on 4/11 with RSI uptrend starting. Historically, the RSI has been a good indicator of oversold as the pps corrects temporarily each time it hits 70 along the pps uptrend from 1/21 to 3/14.

MACD came alive 1/21/14 with a large pps spike shown in the large candle body. You can see MACD was signaling overbought around the time the pps corrected on 3/14 as the MACD line hit 1.5. Note the sharp MACD line dip below the red MA line on 3/17 which indicated a strong sell signal. MACD just starts to spike upward on 4/11 but caution of a sustained pps uptrend until MACD is above the threshold bars.

CMF has been below the neutral line since 3/17/14. Notice how CMF is starting to return to the 0 line on 4/11. A cross above the 0 line would be bullish.

The second chart keeps the 200 and 50 MA overlay but BBs, Acc/Dist, MFI, and OBV have been added.

The BBs have been wide mainly, even before the pps jumped above $1. A switch to the Nov 13′ through mid Jan 14′ would show BBs wider than including in a chart with large change in pps. Between 2/10-2/24 you can see the BBs were at the tightest and the result was a nice pps breakout from 2/24-3/17. The candles never dropped below the lower BB to signal oversold before the 4/11 pop.

Acc/Dist has been following the pps trend. Notice the sharp decline on 3/17/14 however. This could have been telling in regards to the pps downtrend from 3/17 to 4/10.

OBV has followed the pps trend as well, though not as sharply. This is inherent in the averaging used in the OBV line plotting. Large volume changes would effect OBV more drastically such as on 2/24 and 4/11. Notice how Acc/Dist predicted the pps correction before OBV, but both predict the downtrend nonetheless.

MFI has been a good predictor of overbought on this 6-Month chart, but not of oversold. Notice on 4/1 and 4/7 how the MFI was below 20 yet the pps just traded sideways instead of uptrending. This is one reason I check the historical trending of an indicator before relying heavily on it.

The third chart adds the 8 and 32 MA as well as the Ochimoku Cloud overlay, ADX/DMI, CCI, and more clear volume bar set.

Notice how the pps candles cross below the 8 MA on 3/17/14 before majorly correcting for a few weeks. This was a major bearish signal. It’s not until 3/30 that the 8 MA drops below the 32 MA, and if a trader wasn’t out by then it was definately signaling get out then. Like the 50 and 200 MA, the 8 and 32 MA signaled buy on 1/20.

The Ochimoku Cloud was predicting support between 4/4-4/7, but the candles break below the cloud triggered a sell signal. I feel in this chart the Ochimoku Cloud loses it’s estimation ability until the next correction on 4/11 plays out longer.

The ADX/DMI had signaled buy on 1/21 when the ADX began a strong uptrend and the +DM crossed above the -DM. Between 1/21 to 3/17 the +DM stays above the -DM with a pretty consistent 30 ADX line signaling a strong trend. By 3/17 the +DM dips below the -DM and the ADX line dips signaling trend reversal (sell). On 4/11 the ADX/DMI signal are attempting to become clearer but it is too soon to read exactly what signal will prevail- buy or sell is confused due to lines meeting.

The CCI has been a fairly good indicator of overbought and oversold. Notice more extreme values past 100 and -100 have predicted pps changes. CCI has followed closely with pps movements. Between 4/9 to 4/11 the CCI signaled oversold and the 4/11 bounce wasn’t surprising.

The clearer volume bars show what was described earlier- strong interest has been in this ticker since the $1 crossing.

The final fourth chart adds the 10 and 50 MAs, price change, ROC, and Williams R.

Just like the other MAs noted before, the 10 MA crossed above the 50 MA on 1/21/14 and fell below on 3/17. The candles fell below both MAs 4/1 which was a very bearish signal.

ROC was sporadic in the first pps spike around 1/21/14. Since, it has moved slightly with the pps uptrend, downtrend, and then spike on 4/11. You generally want to see ROC above 0% for a buy signal.

The other two indicators I place as filler indicators.

I haven’t touch on support and resistance yet, so here it is quickly. Support is the general pps where a downtrend can be halted, as chart history or MAs show. Resistance is the pps needed to be broken to allow an uptrend to continue. MNTR’s support appears to be $1.40-$1.50 and resistance at $3.91. Breaking above MAs at this point would be other resistances.

If you’re short on time to create and analyze charts there are two other options I have tested to be fairly accurate in the short-term: Barchart and American Bulls.

Barchart offers free trader resources, TA, financial analysis (FA) and other features and scanners. A mobile app is also available. Here’s MNTR’s analysis:

<a href=”http://www.barchart.com/opinions/stocks/MNTR”>16% Buy overall; 0% hold short-term; 25% buy mid-term; and 67% buy long-term</a>.

American Bulls use strictly candlestick analysis and offers free candlestick training. Here’s MNTR’s analysis:

<a href=”http://americanbulls.com/members/SearchList.aspx?lang=en&SearchText=MNTR&PageChoice=Confirmation”>Not available</a>.

Unfortunately, not all tickers are analyzed.

iHub Ticker Board Positive Sentiment

I like to read the iHub ticker board and search for top board status to see how much positive or negative buzz surrounds my prospect ticker. Sure many lie in anonymous posts online but many show their motivation.

The MNTR ticker board on iHub shows a general long-term sentiment. DD is in the intro box and stickies. iHub also offers news related to MNTR it has captured:

Summary

These criteria generally reduce my loss risk. A chart uptrend of 2-3 days allows more optimism of a continued uptrend. Company news keeps traders motivated for a successful future, so regular PRs are a must. TA showing buy signals helps show buyer sentiment and allow estimation of the better entry and exit. A positive trader sentiment on the ticker board aids me in knowing if enough traders are interested in a continued buying behavior.

Here are additional DD and analysis I may perform to feel better about a trade:

Current OTC/SEC Filings With Revenue

Search OTC Markets for your target ticker’s OTC filings:

<a href=”http://www.otcmarkets.com/stock/MNTR/filings”>MNTR OTC Filings</a>

Note MNTR hasn’t filed SEC filings since 1998. If SEC filings were filed you could search here:

<a href=”https://www.sec.gov/edgar/searchedgar/companysearch.html”>SEC Company search</a>

Does MNTR show Revenue in the 2/28/14 filing? You have to look in the Income Statement here:

<a href=”https://www.otciq.com/otciq/ajax/showFinancialReportById.pdf?id=117601″>MNTR 2/28/14 Interim Financials</a>

MNTR doesn’t have Revenue yet, despite showing $40 million in assets and liabilities with a ($500)k deficit! At this point I would watch this target or search news for hints of Revenue occurring or about to occur through contract announcements, product/service offerings, or company updates that state Revenue is occuring and the filing is coming soon to verify. Filings take months to be available and the OTC/SEC has set windows to report quarterly info for the company to be in compliance for financial reporting.

MRIB is an example ticker I’ve traded that didn’t show Revenue in the filings. However, company PRs and CEO interviews showed multiple contracts signed pointing to Revenue to occur with their vodka sales at the time.

Momentum and other TA Indicators Pointing To Buy

TA stands for chart technical analysis. Chart reading can aid you in seeing whether buyers or sellers are more interested in your target ticker over a set time frame. Please see my stockcharts.com blog post for this free great resource to learn and do charting.

High Trending Volume

Note on the chart above the high volume trend. I want to make sure enough interest has been shown for my shares purchased to be exited in the future without the need for selling over several days. If a company is issuing PRs regularly this volume check shouldn’t be as important.

Dilution

To search for dilution you first start with the company share structure (SS). OTC Markets or the state a company is incorporated in will have this info.

<a href=”http://www.otcmarkets.com/stock/MNTR/profile”>OTC Markets MNTR Company Profile</a>

SS shows as: 400 million a/s a/o 9/30/13; 10.1 million o/s a/o 2/28/14; and 2.2 million float a/o 2/28/14.

Note: The Balance Sheet or Statement of Owners Equity sometimes shows the SS info also.

MNTR’s company shows the company incorporated in CA. The fins will discuss this also.

<a href=”http://kepler.sos.ca.gov”>CA SOS (Secretary of State) Company Search”</a>. The CA SOS has other corporate info besides legal name, address, and officers in another search. Shareholder info isn’t required to be filed in CA.

The next step is to contact the transfer agent (TA), MC Transfer, shown at OTC Markets in the Company Profile. MC Transfer will probably disclose the a/s and o/s unless Mentor Capital has gagged, to not disclose info, the TA. If the TA is gagged then the company would have to be reached for this info.

Once the current float, o/s, and a/s are known then dilution can be investigated in the volume in charts or by viewing the L2 over a few days to see which market makers (MMs) are leading the Ask with 10k shares consistently. MNTR’s volume has been 1 million shares traded on highest volume days since 1/21’s pps spike above $1. The high volume days have been about 4 with about 10 days above .5 million traded. Total is about 11 million shares traded and pin pointing exact sells versus buys is almost impossible. At 11 million total trades shares my opinion would be the 10.1 million o/s displayed a/o 2/28/14 hasn’t increased much. Dilution would have to be viewed on the 1-year chart via volume overall.

This company had added free L2 viewing at OTC Markets, a rarity for a Pink Current status:

If you wanted to have decent looking basic DD posts to spread the word then DDNotesMaker might inspire you. DDNotesMaker also offers a buzz board to see if your target ticker is being viewed a lot there. Here’s a link to see the buzz board and to ticker search:

<a href=”http://www.ddnotesmaker.com”>DDNotesMaker</a>

DD can take a much deep look and time investment. Further DD can include contacting the company, visiting the company, researching the company website and social media points, industry analysis, company comparisons, financial statement ratio analysis, and etc. most penny stocks aren’t worth this effort IMO.

Many TA techniques exist. I have chosen overlays and indicators I’ve studied, tested, and am comfortable using. Other blog posts I write, and to be written, will be focused on other TA techniques and individual traders with specific TA skills I’ve grown to trust.

Promo History

StockPromoters.com is the best free database of paid and unpaid promotions for penny stocks I’ve found so far. Here’s 1 unpaid promo shown on 2/7/14:

<a href=”http://stockpromoters.com/View-Stock-Promotions-By-Symbol.aspx?symbol=MNTR&ctl00%24ContentPlaceHolderyy%24Footer1%24Image2.x=-344&ctl00%24ContentPlaceHolderyy%24Footer1%24Image2.y=-199″>MNTR Promo History</a>

Promos don’t always show in general capture. Sometimes a trader who has many followers will alert a ticker and cause short-term interest. It can be difficult to know when a group of traders has been alerted to buy or sell.

I like to use Hotstocked.com as another source of free database search for paid or unpaid promotions. The researchers there also like to write articles that can offer a start to DD for your research. Here’s a recent article:

<a href=”http://www.hotstocked.com/article/79672/mentor-capital-inc-otcmkts-mntr-continues-to.html”>3/24/14 MNTR Hotstocked article</a>.

Hotstocked paints a suspect picture for MNTR, in their usual style, citing low fins for such large acquisitions and a low pps to be issuing preferred shares at $7/share.

8/6/14 Update

This update will show the results of MNTR since my 4/14′ UPtrend analysis. I never really gave an opinion to buy or sell as I wanted readers/traders to learn and make decisions on their own.

The elements of my UPtrend strategy were being met around 4/14′:

+ 2 day uptrend: met

+ Recent PRs from company: met

+ TA with PSAR of buy signal (below candles): met , 30+ ADX with +DM above -DM, and CCI above 0 or oversold below -100: wasn’t met.

+ Positive ticker board presence on iHub: met

However, there was one blaring red flag- dilution. The chart below shows the large increase in trading volume as company PRs and promises kicked on high gear. What remains is a pump and dump type chart, as explained in my other blog posts. The effects of dilution are powerful because as issued shares are sold buyer momentum slows and buyers begin to realize they aren’t winning the battle.

That’s my basic and comprehensive look into my UPtrend strategy and obtaining DD. I hope it helps you.

Happy trading!

Please note: This page is not an offer or solicitation to buy or sell securities or to provide my TA and FA ability. My hope is to give traders a free starting point to teach “how to fish” to improve trading skills for research, analysis, ticker selection, and entry and exit with risk estimations.

Chart Analysis

Leave a reply

April 10, 2015

What is this $SPY chart telling traders?

Many traders believe that chart analysis, also called technical analysis (TA), is just tea leaf reading. An imaginary technique where the chartist is seeing what they want to. After a few of years of being a chartist myself I can report there is a science behind chart reading. Various indicators tell you whether a chart, and ultimately the pps, shows buyer or seller sentiment.

This post will give basic links to some starts in TA. You should pick an indicator a day or once a week to become familiar with and then test it on your favorite ticker charts. Given the time and effort to study how to use TA I feel you will start to see trends that other traders do not. A whole new perspective developed and your view of trading won’t be the same.

My goal is to find and bring to you free TA resources. There are many paid options that I’ll leave to you to invest in. I feel testing and learning on your own with free resources can be just as valuable as spending money to learn.

StockCharts Chart School

BigTrend’s TA Guidebook

IncredibleCharts Charting

StockCharts.com offers an array of free and paid technical analysis (TA) services including:

+ Charting
+ Technical Overlays, Indicators and Oscillators
+ Technical Scans
+ Technical Blogging
+ Overviews of Financial (FA) and Technical (TA) Analysis

Read these before using ChartSchool:

Chart School Overview

Technical Analysis 101

Introduction to Technical Indicators and Oscillators

Fundamental Analysis

Chart School Index

Here are my favorite free services:

Basic Daily Scans

All Free Charts

TA Cheat Sheet

I’m going to add a quick cheat sheet of momentum and other indicators and the values I expect. First, you need to know what oversold and overbought mean. Oversold means chart indicators are pointing to too many traders have sold and the trend will reverse soon. Overbought means the opposite with too many buyers having bought making the pps uptrend unsustainable with correction expected soon. Some use only 1 or 2 indicators solely, while I like to use many for a “stars align” feeling.

I mainly utilize PSAR, DMI with ADX, and CCI TA indicators to save time.

Candlestick pps presentation shows the opening and closing pps info as well as the day’s pps range.

Volume. It is said volume proceeds price, unless everyone is selling…

MA = Moving average. You want a smaller day MA to be crossing or over a larger day MA. Such as the 8MA over the 32MA.

PSAR = Parabolic SAR. A PSAR dot below a pps candle signals buy while a dot above signals sell.

CCI = Commodity Channel Index. Values above 0 signal buy. Oversold is a value below -100 while overbought is signaled with values above +100.

RSI = Relative Strength Index. Values above 50 mean buy. Values above 70 mean overbought while values below 30 signal oversold.

CMF = Chaiken Money Flow. Bars above the neutral line signal buyer pressure while bars below signal seller pressure.

MACD = Moving Average Divergence/Convergence. Looking for the MACD line to be above the MA line and rising above the threshold bars signals a strong uptrend.

Acc/Dist = Accumulation and Distribution Line. This indicator should be uptrending to signal many buyers are holding versus selling occurring. A dipping Acc/Dist signals sellers are in control.

MFI = Money Flow Index. Values above 50 mean buy. Values above 80 mean overbought while values below 20 signal oversold.

OBV = On Balance Volume. Said to indicate large buying volume. This indicator should be uptrending to signal many buyers are holding versus selling occurring. Similar to Acc/Dist.

ROC = Rate of change. Basically, an uptrend above 0% signals buyer pressure.

Here are a series of 6-Month charts on $MNTR, an OTC QB at the time, with my TA from the cheat sheet above.

Note how the candles were just touching the 200 MA on 4/10/14, and this bounce off the 200 MA on 4/11 is a very bullish indicator.

CMF has been below the neutral line since 3/17/14. Notice how CMF is starting to return to the 0 line on 4/11. A cross above the 0 line would be bullish.

The second chart keeps the 200 and 50 MA overlay but BBs, Acc/Dist, MFI, and OBV have been added.

The BBs have been wide mainly, even before the pps jumped above $1. A switch to the Nov 13‘ through mid Jan 14‘ would show BBs wider than including in a chart with large change in pps. Between 2/10-2/24 you can see the BBs were at the tightest and the result was a nice pps breakout from 2/24-3/17. The candles never dropped below the lower BB to signal oversold before the 4/11 pop.

Acc/Dist has been following the pps trend. Notice the sharp decline on 3/17/14 however. This could have been telling in regards to the pps downtrend from 3/17 to 4/10.

The third chart adds the 8 and 32 MA as well as the Ochimoku Cloud overlay, ADX/DMI, CCI, and more clear volume bar set.

The ADX/DMI had signaled by on 1/21 when the ADX began a strong uptrend and the +DM crossed above the -DM. Between 1/21 to 3/17 the +DM stays above the -DM with a pretty consistent 30 ADX line signaling a strong trend. By 3/17 the +DM dips below the -DM and the ADX line dips signaling trend reversal (sell). On 4/11 the ADX/DMI signal are attempting to become clearer but it is too soon to read exactly what signal will prevail- buy or sell is confused due to lines meeting.

The clearer volume bars show what was described earlier- strong interest has been in this ticker since the $1 crossing.

The final fourth chart adds the 10 and 50 MAs, price change, ROC, and Williams R.

Just like the other MAs noted before, the 10 MA crossed above the 50 MA on 1/21/14 and fell below on 3/17. The candles fell below both MAs 4/1 which was a very bearish signal.

ROC was sporadic in the first pps spike around 1/21/14. Since, it has moved slightly with the pps uptrend, downtrend, and then spike on 4/11. You generally want to see ROC above 0% for a buy signal.

The other two indicators I place as filler indicators.

I haven’t touched on support and resistance yet, so here it is quickly. Support is the general pps where a downtrend can be halted, as chart history or MAs show. Resistance is the pps needed to be broken to allow an uptrend to continue. MNTR’s support appears to be $1.40-$1.50 and resistance at $3.91. Breaking above MAs at this point would be other resistances.

If you’re short on time to create and analyze charts there are two other options I have tested to be fairly accurate in the short-term: Barchart and American Bulls.

Barchart offers free trader resources, TA, financial analysis (FA) and other features and scanners. A mobile app is also available.

Here’s MNTR’s analysis:

Barchart MNTR Analysis

16% Buy overall; 0% hold short-term; 25% buy mid-term; and 67% buy long-term</a>.

American Bulls use strictly candlestick analysis and offers candlestick training. The current fee is $50/month to join and view site content.

Thank you for reading. I hope this post introduces you to TA concepts and sparks your interest to learn more and start analyzing charts. Happy trading!

When To Sell

Leave a reply

December 20, 2014

An exit strategy is basically selling at a gain or loss, while trying to minimize the possible loss option. One of the most popular questions I receive is, “when do I sell,” and it is related to exit strategy. As a trader, I never want to give another trader a definite buy or sell answer because we are each responsible for our own trades in the end. I offer free advice and accept no liability for a reason- to protect both sides of the learning process. I do have one insight that I try to trade by however- sell with a greed line in mind and use stop losses to protect from large losses.

A greed line is an amount or % that acts as a trading goal with a ticker or stock option. A greed line can help a trader be disciplined in taking the gain as it presents itself while limiting the loss of that gain should greed step in and the pps tank.

A stop loss is a trading transaction a trader can set at a certain pps so a holding will be sold when met. An example is trading $EBAY Calls at $55 at $1.20 and setting a stop loss at $1.00 should the Calls start to lose 20% of the value to $1.00. The stop loss will limit a trader’s loss. A stop loss gives a trader discipline to leave a losing trade and to wait for a better time to re-enter, or to look for a new opportunity.

When to sell is the toughest part of our trading because we want to see our holdings be green, at a gain, and when red starts to creep in the many psychological emotions start to nag at us. I use chart analysis, called technical analysis, and the level 2 for penny stock trading to gauge my entry and exit for my perceived best pps in either side of a trade. This analysis along with knowing how long I should try to hold, what my strategy is, and controlling my emotions aids in obtaining more consistent trading gains. Having a greed line ultimately helps a trader avoid being too greedy and missing a great gain if a ticker pps all of a sudden tanks and places the trade into red status.

When to sell is related to how long a trader should hold in a trade. It’s an estimate period of holding that a trader makes before trading, and if no sizable gain appears at the end of the period it’s time to look for a new opportunity. I’ll be writing a separate post to discuss this important topic.

Trading psychology is important to know and understand so trading fears can be combated that arise while trading. Some trading psychology reference material:

The Psychology of Trading by Deron Wagner
Trading Psychology Edge
Day Trading Coach
Incredible Charts Trading Psychology

Trading psychology quick summary (from the links above not necessarily my view point 100%):

+ Your biggest enemy when trading is yourself. Learn to control your emotions.

+ Four important psychological states during trading: fear, greed, hope, and regret. Don’t let these control your trading decisions.

+ Admit when you’re wrong. Learn from your analysis and research mistakes.

+ Accept trading losses and move on knowing you can and will trade better.

+ Learn and Utilize: Caution, patience, conviction, detachment, focus, expect the unexpected, average up- not down, and limit your losses.

+ Paper trading is a great way to test strategies but doesn’t help a trader feel emotions that need to be controlled. When your money is on the line you have something to lose and it is then that your emotions kick in.

+ 3 day trading secrets: Only 10% of traders beat the market and garner consistent gains; traders are wrong at least 50% of the time; and trading success is dependent mainly upon the trader’s personality (master self then the market.

With holding period, strategy, trading psychology, and a greed line known a trader can better grip on when to sell a position.

Please note: I don’t trade OTC tickers anymore but have a great deal experience with trading these trading vehicles in the past. The rest of this post was when I did trade OTC tickers and can be applied to big board tickers in many ways.

I’m going to use a trading friend’s mid-term hold suggestion $AMMX as an example of how to evaluate when to sell.

$AMMX was suggested to me in March 2014 after a decent uptrend of a couple months. The 2-month chart peaked my interest and I then applied my UPtrend strategy and chart analysis to see if $AMMX would be a good mid-term hold.

+ 2-3 day uptrend: Met.

+ Recent PRs from company: Met.

+ TA with PSAR of buy signal, 30+ ADX with +DM above -DM, and CCI above 0 or oversold below -100: Met.

+ Positive ticker board presence on iHub: Met.

With my basic analysis complete I had one large red flag in my mind and that was the company’s pink limited status on the OTC. I decided to watch $AMMX. Here’s a 1-year chart that shows the pps progress to 8/19/14.

Late in the evening on 8/19/14 my friend mentioned $AMMX’s trading day was a “bloodbath” in a trading chat room. I had been following $AMMX since March 2014 and knew the pps had been trading sideways since May 2014 after a decent uptrend from February to the end of April 2014.

This 6-month chart from the Stocks Pro iPhone app shows two candle dips breaking the sideways trading support range. The pps dip had fallen at least 50% from the gains possible between Feb and Apr 2014. My friend hadn’t mentioned the common question, “when should I sell,” but I knew the question was lurking.

“Should I sell now?”
“The chart shows sell indicators but I want to hold mid-term.”
“I’m still up and this may bounce back.”

The emotions of fearing loss, greed to get more gains, hope that $AMMX could still uptrend again, and regret for not taking more profits back before this pps dip would be nagging me.

The level 2 shows a widening spread, that is a large pps difference between the Bid and Ask. The company’s news has been consistent since Feb. The IHub board, a popular trader medium, interest has dwindled. But don’t forget the oversold indicators on the chart around 8/18-8/19/14. FYI- The iHub news has had known issues reporting all news links in the past. Be sure to visit QuoteMedia or Yahoo! Finance for better news research.

My friend had a strategy, holding period, emotion control, and a greed line as I do. My friend decided to hold mid-term for at least 3-months and stomached the sideways trading that occurred. My friend was is in a pivotal point in the $AMMX trade: sell or hold?

At this point I had no intention of telling My friend what to do. I had laid out the facts and chart analysis. Now it was time to do what traders do- trade.

Here’s what I would do depending on these situations.

I had entered $AMMX in Feb 2014

Greed line- I would have exited at a 50% gain attained by mid-Mar. I may have attempted re-entry based about chart analysis.

If I had made entry in Apr

Chart analysis- I may have been tempted to sell in May when the sideways trading started. This sell in May would not have met my 50% greed line but would have been technically, that is based on chart analysis, a wise move.

I purchased $AMMX in May 2014

Chart analysis- I would have held until the CCI hit 200 in early August. In hindsight it’s easy for me to say I would have expected the dip, but based on chart analysis in the beginning of Aug that would have been my exact conclusion.

If I was still holding $AMMX at the pps dip in the second week of Aug

Control emotions and accept lose- I would sell based on my stop loss of 20-30% only if the oversold condition in the charts 8/18-8/19/14 didn’t net a bounce. Company news has been consistent and active since Feb 2014 and trading buyer sentiment seems to be stale. If I did sell, then I’d look for re-entry later given its a mid-term hold estimate based on chart and other analysis.

You’ll notice I placed key phrases in front of my suggested trading actions. I try to think this way to substantiate my trading decisions.

In summary, the decision to sell is tougher than to buy. Our emotions such as fear, greed, hope, and regret can make us make decisions not based on fundamental and technical analysis. Having a greed line allows us to have a goal and to take the gains without greed clouding our judgement.

Here’s a bonus table for how much gain % you need to recover X losses:

-10% loss -> 11.11% to get back
-20%-> 25%
-30%-> 42.86%
-40%-> 66.67%
-50% -> 100%
-60%-> 150%
-70%-> 233.34%
-80%-> 400%
-90%-> 900%
-100%-> you’re done

Penny Stocks Scam or Misunderstood

Leave a reply

December 15, 2014

Do you feel most penny stocks are scams? You’re not alone as most penny stock traders agree that 99.9% of OTC penny stocks are destined to fail or go to no Bid. Notice the OTC emphasis on the statement. The OTC isn’t the only place to find penny stocks however in my opinion!

Most traders can’t agree as to what is a penny stock. For example, the SEC has stated its thoughts on what constitutes a penny stock in the various stock boards or exchanges of which a company can trade on here. But I consider a penny stock as $10 or less, and take the word “generally” in the SEC’s definition to not be confined to $5 or less, opening up all US boards and exchanges as a trading ground. Some well known traders feel $5, $1, or even $.01 or less are penny stocks. You decide for yourself because it’s your trading style.

Trading choices among the OTC, with its 3 tiers, NASDAQ, or the NYSE opens up many trading possibilities but also the need to get acclimated to the various environments, traders, liquidity, and tactics employed. The point of this post is that some penny stocks can uplist and improve long-term. It takes hard work and research to find long-term penny stock targets so many traders turn to promoters who may offer quick gains (or tremendous losses).

Stocks that fell to the verge of bankruptcy to penny status but came back:

MSN Money: 9 Penny Stocks That Didn’t Stay That Way

Most of the stocks listed in this article, such as Monster Beverage and Pier 1, fell from dollar land to penny status, on the verge of bankruptcy, to only come back to their prior pps levels.

MarketWatch: 2 Penny Stocks That Could Have Made You Rich

This article discusses Concur Technologies and General Growth Properties decline and recovery.

A quick approach to finding a penny stock gem:

Forbes: Fear Not Every Penny Stock

Jordan Terry, with Forbes, starts with the fact that the nature of penny stocks is very risky due to liquidity and pps allowing unscrupulous actions to occur to manipulate the pps. He suggests limiting one’s risk through stop losses and limiting the size of investment according to trading volume.

Jordan switches gears quickly to evaluating companies from a bottom up approach to sift through penny stock targets to find a possible gem:

Utilize Porter’s Five Forces Analysis.

+ Competive rivalry in industry
+ Bargaining power of suppliers
+ Bargaining power of customers
+ Threat of new entrants
+ Threat of substitute products

Nuvilex was analyzed by Jordan and he found overall the company was an 8 out of 10 for the forces analysis. What stood out to Jordan was Nuvilex’s technology that seemed above competitors capabilities. I’d recommend brushing up on doing a Porter’s forces analysis as Jordan doesn’t go into many details. Jordan ends quickly and leaves out a few due diligence tips I would perform such as:

Basic Due Diligence Points

+ Is a product or service being sold and do customers like it
+ Who is management
+ How is Management communication with stakeholders
+ What is the share structure
+ What is the split history and share structure changes history
+ Are filings on time and audited
+ Perform quick financial statement analysis using ratios and compare to other penny stock in the industry
+ Debt info and shares issued so far

Many traders skip fundamental analysis because some of the basic items above are missing. Some traders just use chart analysis and level 2 service to estimate whether buyers or sellers are in control of the pps.

How to find recent uplisters and IPOs:

Now that we’ve gone over some penny stock possibilities for long-term success and some basic due diligence points how do we find these penny stocks to begin analysis? The answer is at the source of where penny stocks reside and by using stock screeners.

iHub: Superstar Uplister board

The Superstar Uplister board was very active from 2010 to 2013 and gave weekly updates of OTC penny stocks that either uplisted or were in ten news as about to do so. Moderators of the board have perused projects elsewhere in 2013 but I like to check in occassionally to see what’s new. Trading OTC penny stocks that are about to uplist is a strategy on itself.

Here are a few ticker examples with pps past and current:

GLOW 12/15/11 $2.10-> $1.38 (high $3.70)
RLGT 1/11/12 $1.50-> $3.08 (high $3.50)
HKAC 2/1/12 $9.70-> $9.93 no volume
CUI 2/17/12 $6.10-> $7.00 (high $11.34)

OTCBB: Daily Graduation List

Here are some penny tickers I followed on the OTC before their uplisting:

PFIE 3/27/14 $3.50-> $3.85 (high $5.97)
ENSV 3/10/14 $2.45-> $3.70 (high $3.70)
LBMH 11/20/13 $2.30-> $3.46 (high $6.00)

This OTCBB list is confirmation of an OTC penny’s actual uplisting.

NASDAQ: IPOs

NYSE: IPO Index

The initial public offerings can be good sources of new stocks trading on the NASDAQ or NYSE stock exchanges. The chances of being $10 or less are small but do occur.

So how can you find penny stock that are $10 or less? The answer lies with a stock screener. Stock screeners can be found online, through your broker, or via smart phone apps. These screeners also offer a great deal of screening capability besides just stock price so feel free to experiment with them to meet your needs. Here’s a list of sources I use for stock screeners:

+ Barcharts.com and the app
+ stockcharts.com predefined scans
+ FINVIZ.com stock screener
+ Stock Station and Stocks + Options Stocks Live apps by Mobile Interactions LLC (big board tickers only)
+ Stocks Live apps by Cinnamon Mobile stock screens called “activities” (all penny stocks available)
+ Follow a trading group, such as mine via GroupMe by e-mailing me your interest

So, are you beginning to get a feeling that not all penny stocks are scams? That some OTC companies can do better and move forward to the big board exchanges, or existing big board companies can stumble only to return to former glory?

Penny stock trading offers many trading strategies with many traders working to provide info or to deceive you. When group think starts to set in I generally begin to question my existence. Not all penny stocks are scams and it is a challenge to be accepted to find the diamonds in the rough that will aid in garnering trading gains.

toohightoolo

Trading journey to financial freedom

Tag Archives: technicalanalysis

OTC QB UPtrend & TA Cheat Sheet

Chart Analysis

When To Sell

Penny Stocks Scam or Misunderstood