How to learn to trade penny stocks

This is my motivational / instructional video on how to learn to trade.

The keys to success:

1. Don’t be lazy. Trading is hard work.
2. Look it up. Use Google and Investopedia and other resources. Read trading books at your local library. I have suggested a few good ones.
3. Don’t believe it unless there is proof. Lots of people lie about trading success. Look for proof that a strategy works before using it.
4. Don’t waste my time (or the time of any other decent trader) with stupid questions … I’m quite willing to help if you have a novel or worthwhile question but I will ignore you if you show that you have not put forth any effort.
5. Anyone who is serious about learning to trade penny stocks should read every single blog post I have written, as well as every post by Timothy Sykes, Tim Bohen, James Krieger, and probably every post by Pradeep Bond. To do less is laziness. A couple other traders who have  blogs that might be worthwhile are BigT and JohnC.
6. If you value your time more than your money, I recommend buying Tim Sykes DVDs (Pennystocking Part Deux & TimFundamentals Part Deux are the best and I own both).

I should note that @investorslive did not say he made $50k on VSTNQ … I was exaggerating. His Twitter feed is annoyingly promotional, though, as he mainly uses it to promote his subscription stock chat. So while he will have great calls like “$VSTNQ is on watch today” before the market opened and it quintupled, there is plenty of “chat is on fiiiiiiiiiiiiiiiiiiiiiiiiiiireeeeeeeeeeeeeeeeeeeeee” type tweets. I subscribe to his pay stock chat room, InvestorsUnderground. If you sign up using my affiliate link you can save up to 15%.

Disclosure: No positions in any stock mentioned. Thinkorswim is one of my brokers. I am an affiliate of Tim Sykes and Investorsunderground. For more details on those relationships, see the terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

32 thoughts on “How to learn to trade penny stocks”

  1. I should note that the poor sync between video and audio on my webcam is a big reason I don’t show my face on my videos.

    Also, in an amusing coincidence, immediately after recording this video I received the following emailed question:

    “Hi Mike,
    Why did pick SogoElite account as opposed to Sogotrade?”

    That is exactly the kind of crap I’m talking about. The difference between the two is obvious and it would take the questioner five minutes to figure that out.

  2. Thank you for the mention, Reaper, and your video is quite awesome and practically read my mind on this.

    Since stating my blog, http://traderbigt.blogspot.com/ I get questions like this now all the time, and it is frustrating because I spend hours of research time, point out exact scenarios for entries and play types, then am asked redundant and super basic questions over either public knowledge concerns, or trading terms that are not even specialized. I do not mean r/g, I mean what is a daily doji?

    One clarification:

    I am not exactly a novice trader, and have years of market experience. I can make errors, but seldom make them on real money plays. Currently I am working on improving the blog and financing multiple trading accounts, which is proving to be a bigger monkey on my neck than yours! Since I signed an agreement with IB in my PDT margin account, I cannot steal funds from there, currently.

    I failed as a long term investor after very few attempts and took up trading, with some interesting results. I started near total focus on penny plays in the last 1.5 years. I have followed Sykes and his free materials since he started, you since your first scrape with him, and read all the sources you gave and several others, daily.

    I posted a simple stock fetcher scan trading strategy, which used “real” stocks http://traderbigt.blogspot.com/2010/02/revisting-earlier-post-on-oversold.html that I devised and one person asked me why their attempt produced delayed results! I went through all this trouble to be asked about subscription plan issues with the charting filter service I recommend? It is very demoralizing.

    It takes HOURS of research, effort, and discipline to trade correctly and with positive expectancy.

    Many people are sadly lazy and this is a game where learning to play it requires the opposite, and the stock market in general takes the money of the ignorant.

    You can lead a horse to water but they must drink.

    I try to help people, but it is true you have to help yourself and do some work independently. Free advice can be quite valuable from the right sources in some cases. You do not have to spend thousands to get going on training courses.

    Keep up the excellent work, as usual, here and in chat!

    Big T

    1. “I am not exactly a novice trader, and have years of market experience.”

      I figured that … I changed the post a little so as not to say you were new. You’re new to me!

  3. LOL Reaper thx for the updates on your comments ha.

    Btw I’m glad gapper strategy is back to green for you. Saw you grabbed STTN as well… clearly a month long inch inch inch chart walk up.

    But with your comments … this is true, but I only post like that when we are absolutely smashing home runs left and right. Other than that the feed is relatively slim with stock ideas, and some copy and paste from chat.

    Other than that yes you are right. I pay nothing for marketing, the only way people find the site is natural organic ranking and twitter. People make money on the tweets and end up joining …. that’s why its promotional at times.

    Regardless great video – agreed 100% – those that take the time are going to get much more out of your site, Tim’s site, my site etc. Reviewing past trades, set ups that worked, set ups that didn’t work, seeing what works for others vs. what you do continually refines your strategy and makes it better. I used to scalp AAPL and higher priced Nasdaq’s all day and got real bored with it… then started trading $1-10 saw how Muddy traded applied it to how I trade (I never used the HOD list before Muddy) and refined my strategy once again.

    Much like your gapping strategy minus the one we both took a hit on WTKN … you’ve refined it by reading/taking the time and watching stocks and doing your own due diligence. STTN for example.. why I say this .. best fits the ticker for probable gap/continuation mode, brand new ticker/first run/been sneaking up for a while… etc etc and you’ve gapped it.. no one told you too… but all the info as to how to pick them is out there just takes a fewwww minutes of non-laziness to learn a bit and review how things work – (btw this used to be STTK and has a history of a big move ran .30 to $2 about 2 years ago – sad part is I was in at .30 big… out at .31 back then .. wooops)

    btw are you growing your beard back out like that picture Tim posted a while back?

  4. I do think, being perfectly honest, that some people are not cut out to trade or even learn to, because their personalities are not compatible.

    Most of this game is research, even in penny plays. In chat and elsewhere, how many times do you get folks who ask you HOW you get the latest promotional pumps? Reaper?

    They do not bother to see that Sykes reviewed Stock Reads on Investomonials.com http://investimonials.com/websites/reviews-stock-reads.aspx

    When I started, the first thing I did was get a junk E-mail addy with tons of storage space, and subscribed to all the penny pumper free list ads I could find! It amazes me I am working on a blog post (which you already covered, if memory serves me correctly) on doing things like this.

    Worse, some folks will do that, and then proceed to INVEST in their pumps, instead of using them intelligently, or they will play ones being promoted by amateurish or poorly funded spammers, or are so illiquid they are not targets or have no chart patterns indicating burgeoning play setups.

    Big T

    1. I think the compatibility part does actually apply to some people, but some of these dumb questions are coming from people who barely know how to open a brokerage account. I was asking a bunch of dumb questions, cause for me, I didnt know where to go online and who or what to trust. People asking Mike questions see and trust his knowledge because he’s transparent.

      I think after 6 months of dumb questions, these same people will start asking more intelligent questions. I was buying these pumps just 6 months ago and believing everything they said… I didn’t know that they could lie so easily in these PR’s and get away with it, until Finally SPNG started dropping off a cliff… When SPNG dropped like a rock, was halted and opened at .03, that struck a nerve. And now I understand that everything SPNG did to promote and get the price up, was all BS to lore in suckers like me to buy that stock. I didn’t loose money on SPNG luckily, even after playing it 6 times.

      After seeing IMGG and SPNG… i can relate to that chart pattern and say.. “hey, this stock looks just like those two, and has similar capabilities of pushing the stock up. It will probably fall in the near future.”

      I think with Experience, people will understand what’s going on. But the people with Passion just pick it up so much easier.

  5. Real good video.

    I totally agree with how hard trading can be. I had no idea about this till I had my hand operated on and took 5 weeks of sick leave. I spent that entire time day trading. Getting up at 5 am (MDT), doing research every night and trying to blog about it. Holy cow. It is a lot of work!

    Now that I am back to work full time and training for some mountaineering expeditions this summer, I just have a hard time keeping up with everything. I rarely blog and usually only trade a couple times a week.

    I’ve focused my efforts now back to learning and studying, rather then trading. Especially since that 5 weeks showed that I need to study up some more…..lol.

    Keep up the great work, Reaper. I’ve learned a lot following this blog as well as Kabam! and Sykes. I’ve added the others you mentioned here to my list as well.

      1. That’s fine. When I started the blog I didn’t realize just how much work was involved and I just got underwater on the work load once life came back into the picture.

        Plus, being so new, I don’t have that much to contribute yet.

  6. thedonger,

    I fully agree with your comments.

    Too many people want to make money first without doing their homework and learning the why and how of trading setups, etc.

    Instead, you are forced to test results, paper, research, refine, and reach conclusions and familiarity with specific approaches that you are expert in.

    Sykes has noted the Supernovae play is one of the main patterns he has built most of his success on, and he knows it and how to play it like a pro, because he has so much experience in working with it.

    I have over years come to the conclusion that many successful traders do some things they know and understand exceptionally well, rather than being a jack of all trades. Sykes is only one example of this phenomena.

    If you have tested positive expentancy methods, good executions in accessing the market, only play things you know perfectly and are good at in practice, you are probably on the right track.

    The only hard part is trading discipline. If you get that under control, you are probably a successful trader already.

    Never put banking coin above knowing why u banked it!

    Big T

    1. The only hard part is trading discipline.
      If you get that under control, you are probably a successful trader already.
      Never put banking coin above knowing why u banked it!

      Do not loose the money you’ve profited… Do not think of money you made in the market as PLAY money to practice with… Practice in a Paper trading account!

  7. Reaper, great video. But you know that there will always be newbies asking stupid/lazy questions. These are the folks that never take the time to read all of the posts of a newly discovered blog.

    When someone asks me what can they do to learn how to trade/invest I ask of them to read all of the posts at http://stockbee.blogspot.com/ starting with the 1st one back in December 31st, 2005. And when they are done reading those posts to get back with me. Out of 100s of suggestions to do so I am yet to hear back from anyone. I would even be willing to accept someone coming back and asking me for a different suggestion if they had a good reason for not reading all of those posts.

    Many are finding out it is a lot easier to sell something to these newbies than to actually trade. Think about it for a minute. Offering a trading room service at $100/month and having a 100 folks willing to pay for that service brings in $10,000. Not bad since it’s steady income! And that’s a ton more money than most could ever dream of bringing in via trading. Plus what would the account size need to be for most in order to have a $10,000 profit in a month?

    There are a lot of folks offering all sorts of products and services out there ranging from $10/mo to $1,000s/mo. All promising that if you use said products/services you will be on your way to riches.

    Now let’s be clear I have no gripes nor complaints about anyone offering such products or services.

    One thing is for sure in this investing/trading world and that is that you can count on an endless supply of newbies.

    1. “Many are finding out it is a lot easier to sell something to these newbies than to actually trade. ”

      Correct. And that is why I say trust no one, not even me. My purpose in running this blog is not to make me famous or share my wisdom; it is to make me money. A secondary benefit to me is it forces me to keep detailed trade records and can help me learn from past trades. But the main reason is money.

  8. ya know… i’ve never really looked at Stockbee… but i constantly hear people talking about it. I guess im missing out on valuable info, and i just cant let that happen.

  9. MarketMonk, good comments. Excellent insight.

    Actually, one problem I have as a gripe is brokers putting out ads like TD Ameritrade did back a decade ago or so, portraying a small trader/investor who wanted not just to beat the market, but to “step on its neck and make it beg for mercy,” etc. This ego based approach makes a great ad, but is lousy role modeling in such a brutal knife fight.

    These folks know that newbies wash out all the time. Rinse, wash, repeat.

    They know that it is hard to make any serious cash on a small account balance with less than 25 or even 50-100K in capital. They know that with such small accounts too much goes into commissions and fees, coupled with lambs that open accounts each day with them ad E-trade, hoping to bank coin, will blow out pretty quick.

    Yet they keep marketing to these suckers with unrealistic expectations knowing they cannot make a realistic go of it on a 2k size balance, which probably makes up for *most* of their new account opens. These folks quit within a year or so, or blow the tiny account out in full.

    It is easier with the pennies, but even here it is hard to do with enough size to make money after trading costs relative to the size, margin requirements, etc.

    They will always be here (lambs) and their supply of fresh suckers replenishing for the taking…but I think Reap is/was just venting on the dumb questions over work spent in research that have nothing to do with the meat of the topic. If you spend hours posting, you hope minutes will be spent avoiding dumb questions.

    There is difference between ignorance and naivete and laziness, even though they are sometimes subtly related they are distinct animals in this game, at times.

    1. As someone with under $10k … I agree it’s pointless in really trading… I’ve recently realized my account will probably take a year to double… and that technically with such a small account I’m really risking far too much.

      It’s a tough reality to accept, because your dreams get in the way… I think anyone with a small account should really consider only trades that Sykes is doing, because they are rare trades, but very profitable trades…

      I make money when I don’t trade, simply because I don’t pay commissions, and avoid paying taxes at the end of the year on trades I barely profit off of. Also the less trades I make the less I fork out to my CPA when taxes come around.

  10. So good to see your smiling face Reaper 🙂

    Great post – I really agree that if you are serious about trading, you should read as much as you can about it. I’ve picked up a few books lately that have really helped me refine a system, or just show me a new way to look at things. As someone who is still looking for a niche that he can trade with in regards to my lifestyle, I’d say another good tip would be to take any “system” you may find and try to break it. Find the times it will fail, or the drawdown it may create, and see if that fits you. If it doesn’t, move on.

  11. Reaper, I tip my hat to you and all of the folks who are offering educational products and services.

    johnc, Stockbee offers great insight into having you turn your thinking around as to ask what works and why it works. Sykes methods work for a reason as do countless other techniques. The key is to find them and exploit them.

    BigT, you can’t trust anyone in this industry from the single guy to the big corporations to our own government.

    Look at the crap that CNBS is pulling these days:
    http://www.thedisciplinedinvestor.com/blog/2009/08/02/sunday-fun-cnbc-fun-or-fraud/

    One of the factors that contributed to me turning around my trading was the day I accepted that only I was responsible for my results. And that my emotions beliefs and other psych factors had a 90% effect on me, more so than my TA knowledge.

    Larry Levin put on an excellent book called Emotion Free Trading, I’d put this book as #1 once you have tried trading for a while cause then it makes more sense and you are more likely to really accept it.
    http://businessclarity.net/the-secrets-of-emotion-free-trading/

    What so many have a hard time understanding is that “anything can happen” once you put the trade on. And that what we are really doing is trading probabilities.
    For a great video by Mark Douglas check out this link:
    http://www.4shared.com/file/96740657/227e2748/Mark_Douglas_-_Mind_Over_Market.html

    Knowledge is 1,000 times more powerful than your account size. So for anyone with a small account, don’t give up. You young bucks have your whole life in front of you and learning how to trade will be the best skill you can acquire going forward.

    Trade well,
    MM

  12. Jeez man, who do you think you are, some sort of Warren Buffet of penny stocks ?

    You do not have the right to be so aggressive at your customers. They are the poor defenseless souls who click on your affiliate links and make you all that money you crave.

    I suggest you just stop the whining and keep doing what you are doing answering all our questions, and directing us to click on your links, and cease with the monkey on your back, I am an overgrown hairy monkey business.

    I little generosity towards your customers should be entertained. I do not come here to be treated like a imbecile, just to get a few free stock picks and be amazed at how you make money even though you are a fairly bad trader. I agree with you, you are not a 2/10, you are at least a 4/10, but still nothing like a Tim Sykes or others.

    1. A better question regards those who would ask me all sorts of questions and take up my time without doing basic research on their own. Who do they think they are that they deserve to be helped for free by an experienced trader? I give a lot away for free. It galls me that people think they are entitled to get personal service for free too. You are not paying anything. Therefore you are not my customer. Therefore I don’t owe you anything; quod erat demonstrandum.

      Maybe you would understand more if you saw all the emails I got. For every “Please share your IB TWS settings” there are two questions like “What broker do you use?” … look at the questions I have answered even on my Q&A (http://www.reapertrades.com/qa-index/) … even after getting rid of the most egregious questions I have still answered plenty of questions that people could have answered themselves with Google.

  13. I kind of agree with Gregory. With this video, Reaper is taking the Tim Sykes attitude but it’s not really justified by his skill. I’ve seen some pretty bone-head stuff on this site, like going both long and short on IFLG at the same time. What the hell was that, dude?…the plays were obvious there and you would have been better playing it either long or short at one time. I sometimes get the feeling that Reaper is just trying to follow Tim Sykes and others with his trades but then fudging the timing quite a bit (which is fine, but just don’t go posing as an expert when you’re not). I keep wondering where Reaper gets these ideas for “buying pumps” that seem to pop up out-of-the-blue? I asked him if he uses a scanner to find these little no-name micro-craps (certainly not a dumb obvious question that you could answer for youself by going to investopedia or whatever) and I never got an answer. Sorry if I missed something in a blog post somewhere…few have read every square inch of material on here and we’re not lazy for that. I’ve read at least 50% of it which is probably more than a lot of folks out there. So, like Gregory says, Reaper be grateful for your monkeys who actually click on your links or use your link to buy Tim Sykes DVDs. If you were a really awesome trader then the money you make on this blog would be irrelevent and a waste of time compared to trading profits.

    1. Holy shit are you dumb! IFLG was the same thing I did on ECOB … to make sure I had a borrow so I could short when I wanted to, even if Sogo ran out of shares. They didn’t, but it was still a worthwhile precaution.

      And yes, I answered your damn question. But you are too stupid to actually look at my Q&A posts or my index thereof that shows several answers to what is essentially the same question.

      4. How do you find stocks that you buy that are potential pumps?

      Your question you posted as a comment on a later Q&A post was answered by me just about a week or so previously.

    2. Probably the saddest part about your comment is that you are too stupid to realize that the video wasn’t about you. I didn’t criticize people who ask me good questions, only those who waste my time with dumb ones.

  14. How does one find potential buy pumps?
    ““““““““““““““““““““““““” I keep wondering where Reaper gets these ideas for “buying pumps” that seem to pop up out-of-the-blue? I asked him if he uses a scanner to find these little no-name micro-craps”
    “““““““““““““““““““““““`
    You only can do so very early on, usually, in the hype.

    So u must be able to see which ones are receiving pumping pressure, and that usually does not come from chart scanning like Stockfetcher because that shows stocks *already* moving in most filter settings to search.

    So, you gotta subscribe to receive email inbox spam from tons of known promoters, count the NUMBER of total ones from different sources pumping the SAME ticker, surf stockreads.com daily, and other online resource links, know how to parse message board chatter, etc.

    He already discussed this…

    1. Actually you’re wrong. For the ones I buy to hold o/n most haven’t been pumped yet. I just watch price action and volume. I’ve described a “pumpish” chart innumerable times.

  15. Yes, I recall the “pumpish” concept approach in your posts, one recent case for example back in early January over AENY over-extension?

    There might be more than one approach, as you note.
    Your methods work for you which is all that counts.

Leave a Reply

Your email address will not be published.

Please complete the formula below to prove that you are human * Time limit is exhausted. Please reload CAPTCHA.

This site uses Akismet to reduce spam. Learn how your comment data is processed.