Stocks

How to Beat Penny Stock Promoters at Their Own Game

First of all, please understand this is what most would categorize as an advanced topic. Investing in penny stocks is very risky in the first place, and you could easily lose your entire investment in any particular stock in any given day. Investing in a penny stock that is being promoted is even riskier because it all but guarantees you will be on a rollercoaster ride for at least the entire duration of the promotion campaign – if you choose to invest that long.

When a promoter mentions a stock in a carefully crafted email to its subscribers, its sole purpose is to get potential investors excited and reach for their wallets. It is really no different than the ads you typically see online or on TV that are designed to get you to buy a product. Instead of a product per se, the promoter is essentially indirectly offering you a stock. They aren't selling it of course, they are making you aware the stock exists. (Hence the investor awareness label).

Of course, these promoters are good at what they do. So many people do wind up buying the stock either at the prevailing price or at a limit price they set. Because of this, the price often rises giving the illusion that the company is going places or "moving in the right direction." Sometimes, these promotions coincide with a timely news release. For example, during a promotion it isn't uncommon for some sort of news story to hit the wires about a new product, new endorsement, FDA approval, merger or buyout. This further emboldens the promoter's stance that the stock might be worthy of consideration.

Typically, these gains are very short lived. The stock price begins to fall as it becomes overvalued and people begin to sell. Usually promotions only last for 1-2 days, though major promotion campaigns can last longer. Additionally, promotion campaigns can involve 1 promoter or several.

They key to beating the promoter, so to speak, and reaping your profit is to get in as early as possible to ride the price wave up, then sell as soon as you hit a proift goal – and don't look back. When a promoter announces a stock promotion, if you decide to invest, you must do so quickly. Set your limit price and execute the trade. Then immediately setup a limit sell order when the price reaches your profit goal. (And always remember to keep investment costs in mind when determining your goal – otherwise you will short yourself.) Set up trading alerts and create a stop loss order in case the stock goes south to limit your losses.

This is easier said than done. Fortunately, promoters typically "pass" stock promotions around each other. Think of them like a small community that pay each other. For example, stock promoter 1 may be promoting ABCD, then tomorrow stock promoter 2 may be promoting the same stock – while stock promoter 1 has moved on. Typically the best chance for high growth in the short term is on the first promotion when the stock is "new". So the trick is to try and find when a promoter is the first in promoting a stock and get there as one of the first investors.

The other item to remember is to not look back once you sell. Once your goal is reached, sell immediately and drop the stock from your short term radar. It does you no good if the stock continues to do well since you have already sold it. You cannot ask yourself "what if" or "If only". These emotions will cloud your judgment and make it harder to stay disciplined the next go round.

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