Penny Stock Trading System!

If you start following penny stocks with just $200, you can turn it into $1,000. You can then turn that $1,000 into $10,000…that $10,000 into $50,000…you get the picture! Turn $1K into $1M with this penny stock trading system in 2010!

Don’t believe it’s possible to turn $1K into $1M with penny stocks? Well, a college student James Connelly a.k.a “The Penny Stock Prophet”,  majoring in mathematics and statistics did just that in 30 days in only 38 trades averaging about 20% ROI on each trade.  Discover how a college dropout hit upon a secret mathematical formula that turned $1K into $1M investing in penny stocks!  Get this FREE Penny Stock Trading Report from James Connelly that shows how to pick penny stocks that triple in price in a matter of days and can help you turn $1K into $1M in 2010!

What is a penny stock?

Many investors mistakenly believe that any stock trading below $5 per share is a penny stock. By defining a penny stock as a stock trading for less than $5 per share, they separate themselves from trading highly risky stocks. There are some who think that penny stock is a stock that trades for a cent. Both these definitions are correct. There is not one way of defining a penny stock. But the most accurate definition of a penny stock is a stock listed on the Over the Counter Market and the Pink Sheets. This definition eliminates all those stocks that get traded on New York Stock Exchange or NASDAQ Small Cap Market for let’s say $0.5. Very few stocks on these major exchanges get traded for below $1 per share. This is a sign that the company whose stock once traded for way above this price is in trouble due to mismanagement or some other financial problem and is headed for a bankruptcy and will soon be delisted from these major exchanges.

Many investors specialize on investing in companies headed for bankruptcy. But it is always more profitable to invest in companies that are awaiting their future than companies that have no future and are fast headed to their decline and liquidation. Now many companies who now trade for more than $50 once traded for under $1 like Microsoft, MCI, Toys R Us and many others. So you can well imagine the potential for penny stock investing.

Penny Stocks And Pink Sheets

Pink sheets is a corner of the securities market where you can find exciting opportunities if you have done your due diligence and research well. This small market is like the Wild West of the 19th century when there were no rules. There are almost no rules and no oversight on the these Sheets. Companies traded on Pink Sheets do not have to file financial statements and do not even have to issue an annual report even. Most of these companies are happy being listed on the Pink Sheets and do no plan to move on to the Over the Counter Bulletin Board (OTCBB). Many even may don’t have ongoing operations.

You might be thinking that most of the companies that get traded on the Pink Sheets are just mom and pop shops posing as companies. This market is infact home to 20,000 stocks. For one reason or another, these companies have chosen to stay on the Pink Sheets. The reason for this can be the company’s desire for privacy. Getting listed on OTCBB may cause a loss of privacy for these companies as SEC requires to know exactly how each executive is being compensated  and how the company owns assets.

Many smaller companies don’t want to divulge all this information at this stage of their business cycle. IF they are embarking on a new business venture, they might want to keep all of their information as secret. This forces many potential investors from staying away from Pink Sheets. To make matters worse, many market makers charge wide spreads on Pink Sheets. It is not uncommon for a penny stock on Pink Sheets to have a bid of $0.05 and an ask of something like $0.2-0.25. This happens when the market maker feels that the market for the stock is thin. The market maker does not want to buy a stock only to be stuck with it for a long time waiting for a new buyer to show interest. This wide spread is a way to discourage buyers away from this penny stock.Get this FREE Penny Stock Trading Report that shows how to pick penny stocks that triple in price in a matter of days and can help you turn $1K into $1M in 2010! However, many pink sheets stocks have a spread of less than one cent so it pays for an investor to take the Pink Sheets seriously. Most of the stocks that trade on pink sheets have been beaten down so far in price that they trade below their book value. So savvy investors know that they can find a good penny stock on pink sheets. Do good due deligence and research before investing in pink sheets stocks!

Penny Stocks And Over The Counter Bulletin Board

Over the Counter Bulletin Board (OTCBB) Market started on trial basis in 1990 as part of a reform process initiated under the Penny Stock Reform Act of 1990! SEC was mandated by this act to start an electronic system for the real time trading quotes of penny stocks. The purpose of this electronic system was to allow spread of price quotes and trade transactions.  In 1993, all firms have been required to report trades in all domestic OTC equities through the Automated Confirmation Transaction Service (ACT) within 90 second of the transaction. This allows anyone to know how many trades are taking place in a stock, the direction of the trade, buy or sells and the volume in real time. Stocks that get traded on OTCBB might include national, regional, foreign equity issues plus warrants, units, ADRs (American Depository Receipts) and DPPs ( Direct Participation Programs).

SEC approved the operation of the OTCBB on a permanent basis with some modifications in 1997. Up to that time a company was not required to file its quarterly and yearly financial reports. So many companies traded without disclosing any financial information. This made it difficult to research these companies. An investor was hamstrung and was forced to rely on the press and communication with the company for information. A company would issue a press release that it made $50 million quarterly earnings with no information on its debt or expenses. This made it difficult for many investors to invest in these companies. Many investors stayed away from what could have been a lifetime opportunity.

To overcome this problem, SEC instituted the Eligibility Rule. This rule mandated all non reporting companies to report their financial information to SEC. If the company still did not report a small e was added to the end of it ticker symbol on OTCBB. A grace period of 30 days was given to that company to report and if not done within that period, it was delisted from OTCBB and relegated to pink sheets. Those stocks that do not fulfill the Eligibility Rule of OTCBB get traded on the Pink Sheets. This small market represents the era of the Wild West with no rules and no oversight. Pink Sheets can provide exciting opportunities if you do your due diligence and research before you decide to invest in stocks listed on the Pink Sheets! You can find some hidden gems on the Pink Sheets!

How To Find Hot Penny Stocks?

How do you find the right penny stock that can give you a good profit? No doubt, it is a challenging job to find a good penny stock keeping in view the lack transparency. There is no public financial for you to go through. There is no current annual report to compare with the previous annual report. So how would you begin your research for the right penny stock? Begin by selecting an industry that you understand. The world of micro caps is full of opportunities. But you will have to sift through it to find the right penny stock for investing. We all have hobbies or line of work that we can talk about for hours. Suppose, your hobby is watching movies and you are a movie fan. You can research good film production companies trading on pink sheets.

Another line of approach is suppose you have a line of work that you are intimately familiar with. Suppose you are a finance professional. Employees working in the financial sector can research finance companies that are being traded on pink sheets. Suppose you are a movie fan.You do the research and find a film production company in the process of making a movie that has a good cast and a good love story filmed in spain. You know the importance of good movie reviews and are sure that this movie is going to get good reviews.

Movie industry is highly profitable. You think you have a great penny stock company with a good future potential. Now do some more research on the movie industry online. Find its growth propects for the next few years. You find the movie industry is expected to grow by more than 25% in the next three years. You have spotted a good market. You need to make an educated guess about the prospects of the film production company that you have spotted in the future. Do research and make a list of pertinent questions that you need to be answered like the number of authorised and outstanding shares, financial condition of the company, insider ownership, institutional ownership and business developement plans.

Once you have the list of right pertinent questions, call the CEO of that company or the spokesperson and show a serious interest about becoming a long term investor for the company. If the CEO or the spokesperson is willing to answer your questions, well and good. If the CEO is busy, unavailable or the spokesperson is giving evasive answers, simply drop it. Just remember, many good companies do move on from the pink sheets to Over the Counter Bulletin Board (OTCBB) or even NASDAQ! So, if you have done your research well, you can find some real hidden gems!

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10 Comments

  • alex

    Reply Reply April 28, 2010

    I want to learn how to trade penny stocks

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    Reply Reply August 2, 2010

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  • Manu Costa

    Reply Reply September 15, 2010

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  • Great information about penny stock.. But I have a question that how can i find hottest penny stock?

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