Lets start slow, so what exactly are penny stocks? 

Hearing the name, most people would think that all penny stocks or “pennies stocks” are just cheap stocks priced under a buck, but in reality, penny stocks are rarely under a dollar, and by definition penny stocks are just stocks priced under $5

Why do experts advise to stay away from them?

Most penny stocks (NOT ALL) are over the counter or OTC. What does OTC mean? it means that these stocks are far less regulated by officials and are prone to market manipulation by fat cats with more money than you can dream of. With far less regulations and cheap prices, penny stocks can be falsely advertised in a well-known and feared scheme called a pump and dump (not so scary after reading this guide!). You might have heard of it and actually been a victim of it one day, but can you actually spot it before it happens? can you spot the stocks before the pump kicks in and spot the dump before it’s too late and you’ve already lost all the profits and then some? see, most novice trades are caught in the weakest point of the entire trade, the peak of the pump, just seeing their hard earned money evaporate as fat cats dump their 4 million shares, plummeting it’s price down to hell.

So we should just avoid them… right?

Wrong! even though everything said in the prior statements is true, small retail traders can STILL make amazing profits with penny stocks, as long as they know what to look for and trade, and more importantly what to look for to NOT trade.

So where do we start? what do we look for? 

The one thing about penny stocks that is more clear and far more real than anything in the stock market is the accumulation and distribution patterns imprinted on them. When taking a position, big institutional investors don’t have the luxury of entering and exiting a position on the same day, BUT YOU DO (more on this later). 

When fat cats prepare an accumulation phase of stocks, whether it’s a fundamentally good stock or just a pump-and-dump scheme, they go through an accumulation phase where they start buying small number of shares (by small i mean thousands) each day for an extensive period of time (usually 2-3 weeks) to avoid spiking the price too high and alerting people of the activity going on, they most certainly want people to jump in and drive the price higher BUT NOT YET! not until they themselves have stocked their pockets with enough shares to make them millions in a single trade. 

Once the institutional investors buy enough shares of that stock they’ll pump it by either buying a ridiculous amount of shares in a single day or advertising it heavily (Those “free” penny stock alerts, yup they’re all part of the pumping phase). The result is a pump in the stocks price that usually last between 2-3 days before the market takes a break and consolidate the move, assessing the true value of the stock and whether the stock has gone too high for its real value or not.

Okay great.. but how do we make money with this?

REMEMBER, you have a superpower that fat cats wish they had, you’re flexible and fast! knowing everything we’ve discussed so far, you can now understand that even though institutional investors can drive the market, they don’t really have any power over you, if you want to get in ahead of the pump to join the wolves, then getting out before the dump. These “pumps and dumps” we’re talking about don’t necessary need to be a scheme, they can be accumulation and distribution phases of healthy stocks, it’s just the terminology that changes from pump to accumulation and from dump to distribution, so don’t ever feel like you’re cheating anyone and just focus on being successful as a trader. 

Okay great…. but still how do I know if a stock has been in an accumulation phase and ready for a move?

You can use candle stick patterns and volume analysis like the stone ages and still get decent results as long as you keep in mind that a pump will start with a huge rush in volume and ends with another surge. OR you can take your trading to the next level and start using a tool we MUST use here at Swing Alpha for every trade we take called Footprint charts.  Footprint Charts are a recently developed type of charts that replaces a tradition candlestick chart with prints of volume trading in a form of (Bid X Ask) at each price level. 

Why are they helpful? using Footprint charts you can see if the stock is under more demand than supply or vice versa. If a stock is going under an accumulation phase, you can spot that on most days the buying on the ask has been far greater than the selling on the bid. Learning to use Footprint charts will give you an extra edge that will increase your chances of success immensely, it’s the strongest supply/demand analysis tool available that truly gives you unbiased information about the real trading activity of the market. If you want to take your trading to the next level we suggest you stop using time delayed oscillators like it’s 1995 and start using the MODERN tools that gives you the real edge in the market. Here at Swing Alpha, we truly believe that the only real type of analysis that will reward retail invests with huge profits are in supply/demand analysis, and the usage of advanced volume analysis tools such as Footprint charts.

I found a stock, it looks like it’s under accumulation, what now? do I just buy and wait?

NO!! again… you are a slim, fit, flexible panther, you can get in and out of stocks in a split second, why go in and add an extra element of risk called “exposure time”? You can just wait for the breakout, then buy before everyone else knowing that your chances of success are pretty high as you’ve already analyzed this stock ahead of time.

Are there faster ways of finding stocks that are breaking out and ready for a move?

There are several ways you can find stocks to trade using this guide, 

1) You can get our Stock Alerts of picks already fully analyzed with Footprint charts the moment they breakout via email and SMS.

Note! most alerts are NOT penny stocks pump and dump plays, and in fact 90% of alerts are of healthy mid-cap or small-cap companies breaking out on HIGH demand volume. Sure, every now and then we’ll catch a sweet pump that stretches out to a 30%-50% gainer, but that’s not what we primary look for.

2) You can setup your own scanner using trade ideas. Follow the steps you learned here, waiting for breakout, then trading the volume surge.

What now?

Well, If you liked this guide and want to learn more about us and trading in general, you can visit our home page then start reading our many published free guides, yup all 100% free complete trading guides as always from Swing Alpha