Promoted Penny Stocks

When it comes to trading penny stocks, people often forget the unique and potentially dangerous risks of trading promoted stocks. Promoted penny stocks are any stocks that have been openly released by a free or paid newsletter. These stocks can be highly profitable, but will often move faster then normal penny stocks might. In addition, you have to watch out for penny stock scams where a penny stock is falsely promoted in order to hype its value so a third party can gather the profits after pumping uneducated buyers into the market.

Are Promoted Penny Stocks Dangerous?

Promoted penny stocks are not much more dangerous than any other investment in the market. Like anything else, you stand to lose your entire investment if things go terribly wrong, but it’s not very often that they do. Reality is, with proper education and knowledge of the markets, these stocks can be manipulated for profits just like any other stock in the market. But first, here is a brief comparison of the difference:

Promoted Penny Stocks Versus Regular Penny Stocks

Promoted Penny Stocks

IDEH, shown in the chart on the left, is an example of a recently promoted penny stock. You’ll notice it has all the usual signs of penny stock promotion and due to its volatile nature, it is both profitable and dangerous to those who are unaware of what’s going on.

The chart has all of the following symptoms:

-Gapping. As a result of sudden movements and influxes of hype, promoted penny stocks often gap up or down at the start of a trading day. This can make it difficult to secure a good price for a trade. You can counteract this by not placing overnight trades as that is usually when people do research and get alerts about hot penny stocks and cause the market to get hyped up.

-Sudden price inflation and deflation. Within a few day’s time, this stock increased and decreased in value by a massive proportion of its overall cost. This is usually a sign that market momentum is being pumped by an unusual or unnatural source of hype, probably from penny stock promotion. Given that at this current date in time, this is one of the most commonly promoted stocks by various newsletters on the market, I’d say it’s scientifically self evident this stock has been promoted mainly by hype and bad research.

-Stock flatlines after momentum subsides. Promoted penny stocks usually derive movement primarily from the hype of newsletters. When trends reverse, people consider the news and information to be a scam, and the bears rush out of the market like frightened children, and don’t return. You can see this is pretty well evident in the stock’s flatlining pattern at the end of the hype fluctuations. Do not trade a stock if it has already flatlined. In fact, if anything, you should be shorting a stock that has done this if you know it is being heavily promoted.

Here is how I would recommend trading a stock like this:

1. Do research to see how many people are promoting this stock. I use thehotpennystocks.com to find this out immediately. If there are several newsletters on the stock, find out what the research is being presented.

2. Do a counter analysis to see if third parties can confirm the research being presented in the newsletter. If so, trade the stock like normal and follow the rally. If not, move to step three.

3. In a falsely promoted penny stock, the key is to short it as soon as the rally has hit its peak. This shouldn’t take long to happen as stocks like these rarely maintain momentum and its actually easier to time the downfall than the rally itself. Assuming you find a stock like this late, which you are much more likely to, short it at its peak and take the profits instead of trying desperately to ride out the hype in the false hope that it manifests into something real.

Regular Penny Stocks

Regular penny stocks are much easier to do research on that promoted penny stocks. Promoted stocks are basically a huge hype machine that you have to master quickly. In order to get this done, it takes some precision and quick thinking. Normal penny stocks on the other hand you have a much more clear chance to figure out if the data is correct because you are not matching it against the hype inflated by promoters.

The process for a regular penny stock is, well, regular. Look at the research being done on the stock and see if you think it is on its way up or down. It really is that simple.

Just be sure to check and see if the stock is being promoted. The stock chart on the left comes from LFBG which was never being promoted by any newsletters. For that reason, it was much more likely that market data on the stock was 100 percent accurate and not falsely inflated by promoters.

So when I heard that LFBG’s revenues on their video game sales were going through the roof, I saw it as a likely opportunity that the stock could go up, especially with the Christmas season coming up. And it did, and not because some stupid newsletter told me that it did, but rather because this stock actually had real potential. That is the difference between trading regular penny stocks and promoted penny stocks.

So should you Trade Promoted Stocks?

Don’t be mistaken about the nature of this article. My goal here was not to scare you into never touching a promoted stock for the rest of your life. The truth is, promoted stocks can be extremely profitable so long as you know how to do proper research on them and make sure you are not getting lied to by the newsletters. Take the time to confirm any data done on a stock before trading it.

If your own research turns up a different story on the stock than the one being promoted, then track the stock for a peak in price and look for a chance to go short. This could be considered a much more reliable way of making money than just buying and selling the stock, especially if you are unable to get in at the appropriate price. Make sure you follow these rules when trading promoted stock and you will be just fine with whatever comes your way!