How would you define good penny stocks? Cheap stocks that you can make money on, right!
Many people are lured into the shady world of penny stocks by promises of big profits with little risk. What people don't realize is that penny stocks are cheap for a reason. Theses companies are just starting out and are very risky investments. Sometimes these penny stocks are just ponzi schemes and there is no real company.
The dark side of finding good penny stocks
In addition, unsavory stock profiteers can buy a particular penny stock and proceed to send out thousands of mailers, hit the internet forums with rosy predictions and shoot off millions of emails to hype the company they just bought.
Regardless if the company they are hyping is legit or not, penny stocks are easily manipulated and are susceptible to this kind of hype. Of course the hypesters sell out just when you get in and make a killing while you are left holding the bag.
So are there any good penny stocks?
But the question remains, can you make money with good penny stocks? Most definitely! Where do you think Microsoft started? As a penny stock. The same thing goes for almost any successful startup company in existence today.
But how many of all the cheap stocks out there actually become good penny stocks and produce huge gains? I don't know the exact numbers but the chances probably aren't much better than winning the lottery.
This is how many people play the penny stock market, like a lottery. What if there was a way to consistently find good penny stocks?
Changing the definition of good penny stocks
Before I get into a good way to find good penny stocks, let me give you a little background on how to be successful in the penny stock market. We have established that most penny stocks will fail or crash as victims of stock promotion hype.
So what if there was a way to put the odds on our side and profit when a stock goes down? There is, it is called short selling! It is perfectly legal and allowed on all US stock exchanges and many foreign exchanges. As a quick note, most people don't know that you can do this. Just by reading this, you know more than most of the people in the world!
You can read about all the boring details online but simply put, you take the opposite side of a buy position and you make money when a stock goes down.
Given this information, our definition of good penny stocks is still cheap stocks that make us money but we can now refine our definition to a stock that has a high probability of going DOWN. And given our knowledge of why penny stocks are cheap, isn't there a higher probability of most penny stocks going down?!
How do we find these good penny stocks?
The next question becomes, what do we look for in good penny stocks that we can short sale? There are several major factors that I cannot go into here because of space constraints but I will give you a big one that is easy to spot.
If you look at a penny stock chart and you see a large and fast runup in price, that is a pretty good clue that a stock is being hyped. This is especially true if there is no significant news from that company.
Of course this must be taken into account along with the other factors but is a quick and easy way to spot opportunities.
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