|7 Sure Signs That You Should Not Be Playing The Stock Market (at least not the Penny Markets anyway) |
1. You Believe That The Share Price of Your Penny Stock Is Down Because of Shorting
No, no, no! Impossible! We'll say it again. It is impossible for a significant short position to exist in any penny stock. Anybody who tells you otherwise is conning you. Any tout who tells you that his "pick" went down because of shorting is a liar. There is only one reason for a penny stock to go down in price. And that is because sellers (mostly insiders) are flooding the market with stock.
2. You Believe That There Is Such A Thing As A "Paid Basher"
The fact of the matter is that most penny stocks are scams. The regulators have made it far too easy for con artists to infiltrate the stock market with ridiculous schemes, most of which are designed to dump worthless stock onto an unsuspecting public. In order for these cons to get you to buy their stock, their company has to be "talked up" and that is through paid promoters who have developed email or snail mail lists by advertising their own feigned success in the penny markets. Some of these promoters are so good at conning their audience, they even convince subscribers to pay for their membership. Most, but not all, will specify some sort of compensation for their promotion, as required by law.
When a penny stock goes down, touts and company insiders will often invoke the idea of shorting as the cause. As discussed previously, shorting penny stocks is so prohibitive, that it never causes the demise of the price of a penny stock. Still, people will try and convince you that anybody speaking negatively about the prospects of a penny stock is a "paid basher" out to aid the shorts. As there is no upside to paying somebody to speak negatively about a penny stock, paid bashers are a fairy tale. Same goes for these fantasy so-called "short and distort" schemes. If you believe that the share price of a penny stock can go down because of a paid basher, GET OUT OF THE MARKET NOW!
3. You Think That A Stock Can Have More Buyers Than Sellers or Vice Versa
Every trade requires a buy and a seller. Period. There is no such thing as more buys than sells or more sells than buys. Think of a stock as a car. If you are looking to buy, you know how much you are willing to spend. Same with a stock. You make a bid and if the seller is willing to sell it to you at that price, then you have a deal. But there is still a buyer and a seller. Same if you are selling a car. You know what price you want and if the buyer meets your price, then you have a deal. Once again, you still have a seller and a buyer. It takes two to tango and two to complete a transaction. A stock, like a car, boat or house is only worth what somebody will pay for it.
4. You Think That Penny Stocks Can Be Charted
The concept of relying on charts to determine when a penny stock should be bought and sold is one of the most ridiculous theories out there. Chartology is unreliable at the best of times even with legitimate stocks. Penny stocks are at most times manipulated and Bolinger Bands or Candlestick analysis cannot ever be relied on to indicate buy or sell signals. In fact, applying these theories or others like them, is guaranteed to give you a wrong answer every time. Even those that devised these analytical techniques will tell you that they cannot apply to penny stocks. Once a promotion of a penny stock ends, there is no logic as to where it will trade, except that it will trade lower.
5. You Believe That If The Company Makes A Statement, It Is Guaranteed to Be Truthful
There is still the perception out there that regulators like the SEC check out every statement a company make for legitimacy. Or that the regulators will catch and prosecute a stock schemer every time. Not even close to true. Most securities fraud artists, especially in the penny markets, get away scot-free. Even those that are eventually prosecuted, can spend years spinning their cons before they are stopped.
A press release or SEC filing issued by a company involved in a pump and dump scheme rarely speaks the absolute truth, if at all. At a minimum, the truth is distorted with a positive bent to make the announcement seem better than it is. Many are just outright fabrications. It bears repeating, that you should look for the caveats in announcements, which will eventually lead to an easy out for the announcer. For example, financing of up to x dollars. An option to acquire... Will buy back up to x dollars of stock from time to time at the discretion of the Board of Directors. Our favorite term is "best efforts".
6. You Believe That Paying A Tout For Penny Stock Picks Makes the Pick More Legitimate
It is unfathomable that some touts garner fees from their subscribers. These are promoters getting paid from both sides. Almost always, they are promoting the same stock that the "free" touts are promoting.
7. You Believe That Trading In Penny Stocks Is Indicative of The Major Markets
We laugh when we hear someone claim that their penny stock was down because the DOW was also down on the day. How preposterous. Except perhaps in the event of a horrendous day on the major markets (like a crash), when everyone is jittery, penny stocks are absolutely not indicative of the major markets. Most penny stocks go up because of independent promotions and most go to down when the promotion ends or insider selling weighs on the share price. The performance of the DOW or any other major index generally has no relevance to the performance of penny stocks.