Traps To Avoid With Penny Stocks Day Trading

Finding good penny stocks companies is not easy. Many of those listed on the OTCBB and Pink Sheets do not disclose their financials and company reports. Mining the internet for information on these takes time, but it is possible to find good investments if you know what to look for and what to avoid.

One way of investing in penny stocks is through day trading you buy a stock, wait for it to go up, and then unload it again all on the same day. This doesn’t allow you much time to do research, but if you know the signs you can avoid the traps. Here are some things that you should watch out for when you’re intending to day trade penny stocks.

Companies that issue S-8 filings. S-8 filings are documents that companies file with the SEC when they issue additional shares of stock. These stocks are usually issued when the company offers its employees stock ownership options, or as dividends to investors. S-8 filings mean more stocks on float, and therefore lower value.

Bashers and pumpers in message boards. The penny stocks message boards are swarming with these characters. Bashers are people who badmouth a stock so that you would be convinced to unload yours. Pumpers, on the other hand, are people who bought penny stocks and try to convince other people to buy them too in order to push their price up. Once the price rises the will unload their stocks and leave the other investors hanging. Don’t let yourself be swayed by these people; make your own judgment based on your research.

Penny stocks that are promoted through email and faxes. If you receive an email singing the praises of some penny stocks and trying to convince you to follow their lead and invest in them, ignore it. Instead, delete the email or tear up the fax. Most of these messages are sent to specifically convince you to buy, and most of the time the claims are false.

Group purchases of penny stocks. These are also called group runs, and occurs when organized groups of investors buy the shares of a particular stock that has a low trading volume. The stock’s trading will suddenly increase and this will tend to attract other investors, who think that this is some hot stock.

Once other people buy and the prices keep rising, the traders will then start selling their stocks. They would have made their profit, while the investor who bought at the highest price will be left with a dud because this wasn’t really a hot stock it was staged. This is quite risky so buyer beware, but if you do decide to participate in a group run make sure you know what you’re doing.

Too much news, and too often. Some companies like to talk a lot, and overload the public with news about every single thing they do. Besides the frequent news, they issue each one to many different publications in reworded forms. This has the tendency of devaluing the press release. If you’re checking out a particular company, review their recent press releases. Watch for too many releases and too much of the same kind. What you should be looking at are companies with significant news.

News that is neither good nor bad. News are what make a company’s stocks go up or down. Unless a company has significant news, its stock prices will not change drastically. If you decide to buy the penny stocks of a company based on news that is so-so and has no wow factor, your earnings won’t be much. If you’re looking for more earnings, look for companies whose news will make you sit up and pay attention.

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