Trading Penny Stocks
How To Trade Penny Mining Stocks
When it comes to trading penny mining stocks, a lot of people think that they are the same as any other equity. Sure they do trade the same but the charactarists of them is quite different. There are many things to be aware of. One of these is whether to day trade the stock or swing trade the stock. The link below takes you to another page and talks about the differences. There is also the old thinking that you need around $25,000 in order to get started in day trading. That was maybe the case when trading those high priced tech stocks during the tech boom of the early 1990′s. I know a few people who have real well over the years trading these Canadian mining stocks and they got going for as little as $1,000 and a few of them got their start using borrowed capital.
Secondly, most penny mining stocks are owned by companies that depend on venture capital or private placements to keep them funded. Because they are in the exploration business, they do not have a way to generate any income. They may have mineral property or the rights to certain properties, but as they say in Canada, it could be just moose pasture. Without any good drilling results in the ground or good assays, there is not much to get excited about. Exploration in remote areas of the world is a very costly venture. Litterly millions of dollars can be spent on a maybe or what if. But as history shows so often, when it comes to gold and mining in general, people are aways willing put out the money and make their bet. Precious metals always holds the facination and dreams of easy riches and wealth.
A lot of these companies are kind of like sheep. Meaning they follow one another around. Or so it seems. One company finds a hot spot or new strike and it seems the staking rush is on. In a matter of days all the surrounding properties can be snapped up and staked. You can always see this in the trading activity of the stock with these companies. The one who finds good results, the stock price shoots up. Those who have property around or close by will see some activity in their stock trading to the upside. People have a tendancy to chase to rumours. Some refer this to ambulance chasing.
Where Does One Begin.
Most of these penny mining stocks are owned by small companies. The bulk of them, probably 75% are Canadian. Canada is a world leader in mining. The (TSX) Toronto Stock Exchange and the (TSX:V) Venture Exchange is where a lot of these stocks trade. Vancouver British Columbia use to be the hub for penny mining stocks around the world. The exchange was the (VSE).
There are maybe a few hundred or so penny mining stocks that trade on the ASX Australian Stock Exchange and also there are those that trade on the OTCBB in the US. Also exchanges in Europe and South Africa have small mining companies listed. But an over whelming majority are listed in Canada on the (TSX) and the Venture (TSX: V).
While most online brokers will have a stock screener where you can put in the price, the industry, the trading range etc. there are also other site like the Globe and Mail or the Finacial Post.
Another good place to start your research of these companies is on our sister website Juniorminers.com. This website has over 1500 junior mining companies listed and this list keep growing. Each company has it’s stock ticker and exchange plus a link to it’s website.
There are many other places on the internet to find which stocks are having a lot of trading activity. Places like Stockhouse will have each day and throughout the day various news blips on the hottest performing junior stock. This will give you an idea of who is doing what and where. Stockwatch has fair coverage of news releases of penny mining stocks. These news releases are there to let the public know of any material changes to the company. It could be anything from drilling results to land aquisition and anything else in between. Kitco has a front page of new releases updated by news feeds plus as an added bonus you get updated real time metals prices and gold prices. These are sites one should have on their favorites list. I would like to caution that on chat rooms and bull boards you have to really do your own due diligence because of those who bash or worse yet, those who have bought really low and start to pump the goods about the stock only to dump it out. This is called a “Pump & Dump”.
Knowing When To Buy
Knowing when to buy can be extremely tricky. Because these companies stocks can go for months months or even years with very little movement, timing and entry point is very difficult. What we like to do is wait until the first pop in the stock price has been made. This pop in volume and price will usally get noticed on most stock sites, chat rooms and bull boards. After the first flurry of activity has happened the stock will have a tendancy to fall back as profit taking occurs but the interest is there. Depending on what the press releases may say this will help us judge whether to buy or sit tight for a bit. One of the main factors in these plays then become whether the stock will go dormant again or if the stock will be stay active.
Knowing When To Sell
Of course we get quite confused as humans do as to “when to sell”. The timing to sell can be just as difficult to know as the time to buy. Most stock traders will tell you though that if one is up 30% and it looks iffy, why hold? A lot of these stocks will double and for us that is more than plenty to take our profits and move on. You can always get back into the same stock at a later date if the the news and performance is in your favour. When all you get from a bank is 3%-5% annually, a double in a month or so just isn’t hard to take. Be sure to click below to read the difference between day trading and swing trading.
Day Trading and Swing Trading
A lot of people get caught up in the idea that because these stocks can be really cheap, they can make money with them. But fact is these are difficult stocks to day trade. Unless you can get in on the morning rush and buy on the way up and sell on the way up, you will find it best to swing your trade over the course of a week or more. Sure, it is possible to buy and sell the same day. Some of these stocks will get caught up by the masses and run in volitile swings for 3-5 days. But trying to time a top or bottom is an effort in futility. One can loose not only their money but can also loose their sanity.
We take the position of swing trading the stock. We like to buy after the first run up has sold off and then depending on the reason for the run up, take our postion. If the run up in stock price is because of a news release we wait to see what the news was about. If the press release says the company has aquired property or has drilling results or good assays from drill results, each announcement will effect the stock price. In most cases the drilling of the property in question is of course surrounded by peoprty that is owned by other junior miners. It is a good theory to check on their price action also. This is a gmae like any other where everyone is watching the next guy. All these miners have their ear to ground. If you follow a stock long enough and know the story, you can sense how the stock will react to news. This plays well for those who swing trade their positions.One thing that many have difficulty dealing with is press releases. Like any industry, whether it be tech and the term is SAP Integration Server, insurance and term life insurance rates , agriculture or anything in between, mining and exploration has their own lingo. Terms and terminlogy, values, abbreviations etc. are used in press releases. One has to learn what values are good, great, lousy, etc. It doesn’t take long though. A press release to you may sound great. They found gold. But the stock sells off like crazy.
Obviously 2 things come into play.
- The results were bad or not satisfactory to the some of the shareholders or…
- The results weren’t that bad after all. Market makers or larger holders dump the stock just to clean out some shares from the folks who may run scared and sell out. This enables the pros to grab a few more shares cheaply before the next run up.
Because so few exploration companies actually will see their property go into a mine of any kind, the buy and hold strategy doesn’t really work here. Most properties will get tons of dollars spent on being explored but very few claims will see a mine. There are however those penny miners like Diamond Fields that was looking for diamonds and instead stumbled onto Voisey Bay. Having shares in a stock like that from the beginning is just shear luck so that is why we wait out till something sparks interest in the investing public. Right now there is press releases almost daily about some penny miner finding something.
Technical Analysis
We see the term technical analysis used a lot. What is it? Well it’s the analyzing of charts, data and other information. When working with large cap stocks that have developed trends of trading over a certain time period, you can see the highs and lows and go back over time and see that at certain times of the year the stock does certain things. But with penny stocks, especially penny mining stocks the technical analyzing of the stock really does do much good until the stock becomes an active trader or has the public interest. One look at some of the historical charts we have will show that for a large percentage of time the stock did absolutely nothing. It wasn’t until something happened that caused the stock to become active. For these very reasons we try not to hold onto a stock for any length of time.
Trading Software
Professional traders that work out the larger trading houses today use various types of software along with black boxes that run on set mathematical algorithms. These black boxes have trigger points set so when a stock rises or falls the bids or asks will correspond with the real time data that is being fed to the black box. This kind of gives them the upper hand as traders trade stock to make money. Most are short term traders. Long gone are the old buy and hold stock traders who will buy and 10 cent stock and ride it for a few years to sell at a few dollars.
A lot of smaller at home online traders are starting to use various kinds of trading software that will help them with both entry points and exit points based on various factors. We have tried a few different platforms and found that most do work. Once data is plugged into the software itself takes over. You set your variables and parameters based on volumes, macd, velocity etc. It does take a lot of guess work out of trading. It also helps with not becoming sentimental in the stock you just bought.
