First off, I want to start off with scenario break downs so that people can understand the leverage and profitability trading stocks can give you .
A lot of folks think stocks are risky and is gambling and they fear losing all of their money. These things are very true if you do not know what you are doing. Stocks is not gambling if you do the right research and seek advice and read company filings. Patience is key in trading stocks as well. People think you can get rich with stocks , very true, but unlikely in a short period of time, so patience is a virtue. The most important element in stocks is that you can earn a living or extra income by setting yourself up for reasonable gains.
For example, you start with $500 in a trading account.
You put $200 in one stock and it goes up 50% you just made $100 , minus your buy and sell trade fee ($7-10). So minus about $16 from $100 you just made $84.
Sometimes this 50% can come in seconds, minutes, hours or a couple of days. Most of the time with PennyChats Alerts 50% is in a few hours.
Now, you work at a large retail company, making $10 an hour, 8 hour shift is 80$ after taxes maybe $72 , after transportation, you have $68, after lunch, $60 at the end of your physical job shift. You made $68 at your job for the full day. How about taking your weekly/bi-weekly check and 30% of it investing it , or even 50% depending on your living arrangements.
You put $100 in a stock, it goes up 200% in a day you just doubled your money, and came out with 200$ profit plus your initial investment. All for just entering a stock at the right time. Can you see the logic behind this?
Even a 10% return of $500 is $50= $35 (after broker trade fee) in a few minutes (most PennyChat's Alerts stocks go up 10% in seconds). You just made $35 - 10% of %500. If a trade for 10% is done 10 times a day at this rate, that's $350 a day, if it's done once a day , thats $350 a week. That's a great income! Thats extraordinary and all for just a few strokes of the keyboard and wave of the mouse. This is real folks .. and I hope you can follow along and catch on.
Now my scenarios are very modest.. There are stocks going up 100%-1000% during the week very often. So timing and the right resources will get you these type of returns. There is no where else you can get these returns for your money ,legally, but the stock market.
With the stock market you control your losses most of the time. When you are in liquid stocks that you can pull your money out at anytime, you can set stop losses, if you enter a stock at $1.20 , you may set a stop loss at $1.10-15 .. very risky, but its a way to definitely control you from losing your whole investment. You would be losing 2-5% with a good stop loss. Stop losses can be tricky , stocks do go up and down , and can shoot up very quickly , and can be unpredictable. But , its just to show you the parameters that can be set to control risks. With this being broken down, now we will go over some key terms and language within the stock industry.
Trading Fees: Includes Buying a position and selling a position. For ex: $7 fee , for buying shares and $7 fee for selling the shares , will equal a $14. Trade is buying and selling of a stock position. If you buy 5000 shares of a stock, and choose to only sell 1000 shares , you will still be charged $7 when selling the rest of your shares.
Limit Order: Can be used when buying a security (stock) or selling a security. A limit order is a price you want your trade to execute at. Example: a stock is at $5.00 , you want to sell when it reaches $5.30 , you enter a limit order. It will trigger at $5.30 or better. When buying it's the same thing. You want to buy a position at $5.00 , it's trading at $5.30 , you enter a limit buy order for $5.00 it will trigger at that price or below as best price.
Market Order: A market order can be used when selling or buying or a position. Market orders can be risky when buying or selling , because they cannot be canceled, and the market processes them at market prices which can be executed quickly, so be careful when placing a market order. due to the fluctuation of stock prices and the volatility your trade can execute at an unfavorable price, or it can be good if the stock is liquid. Ex: A stock is trading at $3.20 and it is moving fast, you want to get in quickly , you would execute a market order , it can trigger anywhere from $3.10-$3.30 depending on the price changes. Same as selling, if you want to exit a stock quickly and choose market order sell at $3.20 , it can sell in the range of $3.00-$3.40 depending on the liquidity and volatility of the security.
Stop On Quote: You may set a stop on quote when selling a security , usually people do this if a stock moves fast or is volatile, or even they are stepping away from computer and want to control their losses or protect gains. For ex: a security is trading at $5.10 you set a stop on quote for $5.00 to exit the trade if it hits $5.00 , sometimes the stock will sell at a lower price maybe $4.95.
Trailing Stop: If you want to execute your sell order within a percentage(%) range , this can be done as well. If entered a stock and it is up 10% , and you want to exit when it up 30% leaving you 20% gains you can implement this Trailing Stop. However, the trailing stop executes whether you are up 20% or down 20% , so proceed with caution in this type of order.
If a stocks RSI level is over 70, that means it is overbought, this can be bad or good. Some stocks can go up over 90, so not all of the time it is dangerous, but there are many factors you must take into consideration when buying a stock that is overbought. 1. Reason (News, Financials, Hype/Rumor, Pump and Dump) . Either way, most smart traders wait until the RSI comes down below the overbought level before buying. Usually a sell of is on the way, you don't want to be caught into that.
If a stocks RSI level is under 30 that means it is oversold. An oversold stock can look attractive to new buyers for a bounce play, but be careful because stocks can go below RSI of 10. An oversold stock does not necessarily mean it will bounce anytime soon. There would need to be a substantial catalyst coming or hype to get momentum back for a stock to bounce.
- Red/Black Candles: Selling at the bid, usually an indication of a sell off.
- White/Green Candles: Buying at the ask, buying at the ask is when a stock price will go up, and usually indicates an uptrend.
- MacD: This should be held into high consideration , especially when you are a day-trader. When the MacD is signalling downward, that means a sell is off is in place and the stock is in a down trend, which is usually a good time to short or take a long position. When the MacD is signalling upward , there is good buying pressure and a reversal and/or uptrend is in place.
When investing or trading an equity it is important to know the Share Structure meaning the outstanding shares (amount of shares owned by the public) and the float (amount of shares available to be traded). The difference in the float and the o/s is outstanding shares can consist of restricted shares in which an owner/shareholder cannot sell unless filling out a form , or after a certain period of time or price per share is reached. Knowing the amount of shares in a float is what makes a stock very volatile, if there are not many shares out there available to be traded. Low floats are often easily manipulated and you have to be careful , because not every low floater will move, market makers are usually on top of these so without the right amount of volume you can get stuck and lose all of your money.
Authorized Shares are very important to know as well, often this has no affect on the stock price action, unless the stock is a scam altogether. Authorized shares are the amount of shares the stock owners can distribute at any given time into the o/s and float. Many penny stocks may have millions to billions of authorized shares, this is normal ; because after all stocks are to help build a company and raise money- so when giving shares at a lower value than current price , it is suppose to help finance company operations. However , if a stock raises authorized shares often and continuously dilute (sell shares open market) the equity , each shareholder's position decreases. For example: 2 Billion Authorized shares on a stock that is .0010 might sound like alot of money-- but if you times 2,000,000,000 by .0010 It is 2 million dollars in financing if need be. So although it may seem scary and alot of money, 2 million dollars is not that bad depending on the company and what is needed to finance operations.
A companies Market Cap is very important to watch , finding a market cap is easy , you can enter the symbol of any stock into a broker's website that provides this information. Yahoo Finance and MarketWatch releases company information as well. Sometime's that information is not up to date , so searching through latest financials and 10q (quarterly report) will keep you up-to-date on share structure. You can times the PPS by the O/S to find the market cap as well. Smart and experienced traders will research a companies finanicals to determine if their market cap is justified before investing in the equity. You never want to overpay for a position in a stock. There are many stocks overvalued in the market, but if the development of their product can be foreseen as profitable and reach that limit in the near future, people will continue to invest, other wise the market will have to correct itself.
â€‹Example Share Structure:
Shares Outstanding 379,719,103 a/o Sep 10, 2014
Float 291,149,025 a/o Sept 10, 2014
Authorized Shares 5,000,000,000 a/o Sep 10, 2014
Par Value .001
Stock Splits also known as R/S reduction of shares is a process every shareholder should be aware of and can come at any moment , sometimes it can be predictable. Stock splits are done when a float or outstanding shares has too many shares available or when a company is losing money and want to dilute many more shares without shareholders noticing , and also to gain compliance with a larger exchange (NYSE, AMEX, Nasdaq).
All of the above are bad signs and you should stay away from a security in process of a stock split. Usually it has no positive affect on the stock , it will reduce shareholders positions dramatically , for example (1/100 or 1/50 stock split) meaning, for every 50-100 shares you have you are now left with 1 share. Most investors average down after a stock split, hoping when it returns to the price they originally bought in at, they can at least break even. For day-traders, new investors, a stock split is attractive for quick gains, the float will be smaller and the stock will most likely return to it's original pps before the split.
There are forward splits and reverse splits. Forward splits allow the stock price to go above the current price it was trading at and reverse splits, send the stock below the current price it was trading at. Company owners and large shareholders and board of directors have to all agree on this usually before doing so, so you can find out ahead of time if this is an option. Usually the company is trying to attract new investors and raise more money. It's all a game and has no positive affect for small position shareholders.
Obtain a L2 - IHUB has for I believe $19 I use Etrade Pro - It comes with it if you have a brokerage accnt.
On a penny stock , when the l2 has any 10k on the ask with foreign MM's such as VNDM , VFIN, BMAK , MBAY , and many other wierd ones, that are not retail such as ETRF ATDF CDEL CSTI (and a few more) are diluting.
Watch A Stock On the Open -- Even if it is going up it can be a fake break out. Mostly all of them fall. You want to watch at 10 o clock , what the high is compared to the current trading , if it's way lower than the high , be careful . Do not think you got lucky for a cheap entry.
I can show you better than I can tell you . Uploaded I have two pictures- one of "no bid support" , the other dilution.
$TNKE (MBAY) is diluting and (VNDM) is on the ask that is definitely not a good sign. Don't worry about who is buying, sometimes those are air shares.
$AVIX does not have enough volume, nor bid support - the spread is too wide.