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Questions and AnswersUnderstanding Penny Stocks

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Advanced Level Questions

Should I average down?

If you review my explanation of averaging down, and the discussion of it, you will see that I do not suggest averaging down. Instead, I am a bigger supporter of 'averaging up,' where you buy into strength as a stock gains momentum.

How do I pick winning penny stocks myself?

Earlier in Understanding Penny Stocks, I have revealed what I feel is the ultimate penny stock selection method. It takes up nearly all of Chapter Three.

I have a specific penny stock I am interested in buying. Where can I get an opinion?

It is against my policy to comment on the suitability of investments beyond the scope of our published positions. This is for several different reasons, including legal considerations. As well, I would not be inclined to (or have the time to) look deeply enough into the company to make what I feel would be a proper comment.

Your best bet is to do a little research yourself, applying Leeds Analysis which I have revealed earlier in Understanding Penny Stocks.

What external factors impact the penny stock markets?

All of the same driving factors that influence the broader exchanges (like government policy, interest rate moves, the price of oil, political uncertainty...) also have an effect on penny stock shares.

The difference is that smaller penny stock companies usually feel the effects to a magnified extent, because it does not take much trading volume to throw the stock around.

One external factor that impacts penny stocks specifically, beyond those touched on above, include social perceptions towards the risk/reward ratio of these speculative investments. When traders are reminded by the media that Microsoft used to be a penny stock, they are reminded of the potential gains, and flock towards penny stocks to take their chance. When they hear of an old widow milked out of her life's savings by some hustler, they withdraw from the penny stock scene.

In general, as a bull market progresses and stocks perform better and better, more investors are willing to take a risk with speculative penny stocks, while looking to maintain or exceed the rush of investment returns that their conventional shares had been providing.

After a market crash, or in a bear market, investors tend to look for safety and security, and so are more likely to pull out of and stay clear of penny stocks.

Why can I not sell short or buy on margin?

Most brokers only provide 'option eligible' services to stocks trading above $5.00. If a stock is option eligible, it can be sold short or bought on margin. If not, as is the case with penny stocks, you can't. In other words, brokers do not like traders to get fancy with speculative investments.

Be sure to take a look at my earlier comments on short selling from Chapter Four, Advanced Strategies.

What is technical analysis?

Review my complete discussion of technical analysis in Chapter Three, starting with the section Different Schools of Thought.

What is fundamental analysis?

Review my complete discussion of fundamental analysis in Chapter Three, starting with the section Different Schools of Thought.

How do I know when to buy a penny stock?

I suggest using the specific Technical Analysis techniques revealed in Understanding Penny Stocks to uncover what are the best buy and sell prices and times.

How do I know what price to buy a penny stock at?

I suggest using the specific Technical Analysis techniques revealed in Understanding Penny Stocks to uncover what are the best buy and sell prices and times.

How do I know when to sell a penny stock?

I suggest using the specific Technical Analysis techniques revealed in Understanding Penny Stocks to uncover what are the best buy and sell prices and times.

How do I know what price to sell my penny stocks at?

I suggest using the specific Technical Analysis techniques revealed in Understanding Penny Stocks to uncover what are the best buy and sell prices and times.

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