How to Trade Hot OTC Penny Stocks

OTC Markets also referred to as over the counter markets are divided into 3 tiers.

• OTCQX – Top Tier
• OTCQB – Middle Tier
• OTCPINK (Pink Sheets) – Bottom Tier

The Pink Sheets are also divided into 3 separate levels.

• Pink Current – These companies make their filings publicly available.
• Pink Limited – Only provide limited information.
• Pink No Information – Not willing or able to disclose information. The company might be sketchy or going through bankruptcy.

Best Way to Find Hot OTC Penny Stocks

• Free stock screener at www.otcmarkets.com, Equity Feed and Finviz.com. Enter your criteria and you will get a list of penny stocks. It’s useful because you can sort through stocks by volume to find cheap highly speculative small cap companies.
• Penny stock forums such as Investorshub.com, thelion.com, elitetrader.com + hotstockmarket.com
• Blogs

Evaluating Risk

• Unlike Blue chip stocks that trade on exchanges such as the NYSE, NASDAQ and AMEX, OTC stocks have an extreme amount of risk associated with them.
• With greater risk comes greater reward. Some penny stocks can even go to “No Bid”, which means they can be still bought but not sold.
• It’s common to see a pink sheet penny stock gain over 1000% or more in a trading day.

Reverse Splits

• Checkout a stocks chart to see how many if any Reverse-Splits has taken place. For example, a 1 for 500 Reverse-Split would give an investor 1 share for every 500 shares they previously owned.
• Stockcharts.com is an excellent + free charting tool.
• A reverse stock split reduces the numbers of share outstanding and are generally seen as a positive sign for a company but rarely produce great results for OTC stocks. They usually perform multiple stock splits because share price dips backs down to 0.0001.

Share Dilution

• All penny stocks should have a Transfer Agent identified. To obtain the share structure of a company call or e-mail their Transfer Agent. Ask for Shares Outstanding, Authorized Shares & Float.
• Good share structure is important if a penny stock is too diluted its share price won’t move as fast. It could take hundreds of millions of shares traded to move the price. Penny Stocks with low dilution means their share price can move more on little volume.
• This information is freely available unless the “Transfer Agent is gagged”. This means the Transfer Agent has been advised by the company not to share the share structure. This is a red flag and is a reason to avoid investing in this stock. A companies’ Share Structure can be found on Yahoo Finance.

Stock Market Forums

• After you have conducted your own research stock forums are a great place for traders to share their own research with others.
• Beware of traders pumping or bashing stocks.
• Never take anything as the truth. Always do your own due diligence and verify the information.

Press Releases

• Check to see that the company regularly publishes press releases to keep traders up to date.
• Avoid companies that have made false claims in the past.
• They are useful for clues when significant events are expected to be released. Positive news that can be verified can impact a stock’s share price.

Limit Orders  

• Don’t use market orders for penny stocks.
• Some brokers may charge a small fee for limit orders. Always use a limit order to protect yourself.
• Penny stocks are volatile so it would be wise to use Limit Orders when buying or selling micro cap stocks.

Level 2

• Shows the Bid & Ask from all the market makers.
• Level 2 can enable traders to get in and get out of a stock at a good price.
• It is available through online brokers, but some online brokers don’t offer Level 2 for OTC Stocks.

Exit Strategy

• Always enter a trade with a planned exit price in your head.
• It’s best to scale in and out of shares rather than buying or selling blocks of shares.
• If a stock does well sell half your holdings and let the other half ride.

Expect to Lose All Your Money

• Only trade with money you can afford to lose.
• Losing is a part of the game, deal with it.
• Unlike with big board stocks when you win with OTC Stocks you win really big, use large profits as an opportunity to trade other speculative stocks.