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Great Penny Stocks

Updated on December 5, 2010

Great Penny Stocks

The subject of penny stocks is always on my mind, and one of the common inquiries floating around the penny stock investment world is “What are some great penny stocks to invest in?” Well, we have to get a few things straight before we can even move into specific penny stocks to invest in. As a matter of fact, your trading strategy matters WAY more than any one stock you’re investing in. I keep drilling this over and over on my blog and in these hubs, and yet there are still people chasing the proverbial “pot of gold at the end of the rainbow” by expecting one hot penny stock tip to make them the next stock market millionaire. While I don’t doubt that there’s people out there that have actually done that very thing—you know, they received some hot tip about a particular penny stock, they threw a couple of thousand bucks into it, and then the stock went bananas and they ended up making hundreds of thousands (if not millions) of dollars in an extravagant one-time shot. This, in my mind, is not a bona fide “success story”—it’s more like the dude at the basketball game who got picked out of the crowd and happens to hit the full-court shot during halftime…yeah, he did it once, but will he ever be able to do it again? Highly unlikely. But you know, we here in America love the “rags-to-riches” stories, and it feeds our “romantic” vision of getting rich with little to no real work. I’m here to tell you, you can indeed make out like a bandit in the penny stock markets, but it doesn’t have to be a one-time shot; you can learn how to make consistent returns in the markets using specific trading objectives and strategies. I am more of a technical trader, which means that I get my kicks studying price charts to determine potential upside moves (or downside moves, for that matter).

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Buying Great Penny Stocks

What I have discovered over the past 9 years of doing this is that stocks (whether penny or blue chip) move in somewhat predictable patterns, and if you’re aware of how to detect those patterns when they’re in formation, you can definitely profit from the price action of a stock. In the realm of penny stocks, these price movements can be quite mercurial, and you have to have some seriously nimble trading acumen to really hang in the penny stock markets. What I have also discovered is that although “great penny stocks” do exist, what really makes a stock great (or not great, for that matter) is the way that it is traded. So, even if you’re not proficient in picking the exact top or bottom of a penny stock’s price (and I don’t know who really is), if you can learn to trade penny stocks based on high-probability price chart patterns, you’re in a much better position to reap profits from the markets. One of the mantras, if you will, that I have adopted over the past year is the fact that it’s not so much the market, but the trader that makes the thing work. A truly great technical trader can trade anything with a price chart, whether it’s penny stocks, commodities, Forex, or anything else, because a trader who will operate in rigorous self-discipline and according to a written trading plan will almost always outperform some dude just trying to make the markets his “slot machine”. So really, more important in my mind than finding great penny stocks is becoming a great trader. Great traders can pull profits out of some of the most horrific market conditions, because they’re mentally nimble enough to adapt their trading style to the current market environment, instead of trying to force their cookie-cutter technical analysis voodoo on top of the market. Let me tell you, the markets will humble you if you have a chip on your shoulder, or if you think you have the “fool proof” investing system. But as far as actually identifying great penny stocks goes, what I look for in particular is a tight trading range, normally moving along in a “sideways channel” formation (it looks like a snake on a chart). If the stock’s price stays just underneath a certain price level and continues to slink along near that level, especially for more than a month straight, you have a great potential candidate for a move up once the stock’s price breaks through that seemingly “impossible” price barrier. To avoid making this an extremely long hub, I’ll just say that this is the number-one indicator or price chart pattern that I use to identify potentially great penny stocks; there are more, but I simply don’t have the time to list them right now. At any rate, I hope you enjoyed reading this.   

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