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Author: kenmegsmith Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 48  
Subject: Daytrading USA penny stocks Date: 6/3/2001 10:16 AM
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Hi Folks

I found USA penny stocks interesting to trade. John Bollinger (Bollinger Bands) first sparked of my idea of day trading these types of securities when on CNBC news he mentioned that small to medium cap stocks would outperform as the markets begin to recover. He perhaps didn't mean penny stocks.

They are very high risk and with that in mind I usually have positions in value between $500-$2000. The shares themselves vary in price at around $0.10-$2.00.
As an example I traded TLNT on Friday buying 3000 @ $0.30 (08:16:34 Eastern time USA) and closing @ $0.35 (08:21:04) using ECN ISLD in pre market targeting the bid/ask direct. This was a reaction to good news on Dow Jones news, which comes with www.cybertrader.com trading software (out of interest after hours the price closed at around $0.50). One of the most important trading issues you have to deal with when closing a position, is it a pull back, reaching its peak, or just some selling with the price continuing to rise? When you see the asks stacking up and the bids disappearing it may be time to get out, and quickly. The news that you are reacting to may be just tempory or have a longer-term good effect on that stock. You could close half your position and see what is going to happen, if you are brave.

Penny stocks can go up or down 150% + in a day. You have to learn to be very quick in your buying and selling. I would say faster than normally day trading the usual JNPR, CIEN, ADCT etc.
As an example on Friday a news item came on the wire that a bid for MESG was worth $0.60 a share. On level II there was an ISLD ask at 2000 @ $0.52. As I thought for a second some one else grabbed them and within a few seconds the price was up to $0.59. (it closed after hours @ $0.54)

With day trading these types of shares it is usually impossible to buy larger amounts such as $10k+. They are just not available. If you are position trading you can slowly build up large amount but then you may have the problem of trying to sell them if that position does not go the way you thought it would.

So what sort of tools do you need to do this type of trading? Level II is a must. You have to be able to see and interpret the market depth of those bids/asks. I have about five of these running each with the stocks I am interested in. A news service that may come free with your trading software. With cybertrader there is also something, which will search the stock market for the top NASDAQ 25 gainers % and those, hitting new highs/lows on that day instantly. Indices themselves do not appear to be as important as the supply and demand. Watching the time and sales (print) is very important. I don't watch or have charts running on that stock. Through my software there is also all the buys/sells/cancels of my brokerage to look at and all the ISLD open orders and trades. It can be more highly focused than normal day trading. After a couple of hours I am tired, this is probably the main reason why I don't do it all day. Perhaps also, all the action takes place in the first hour or so. Penny stocks are not for the novice to day trade and you really do need all the skills and disciplines of a day trader to trade them.

If I want to do a quick research on a penny stock I'll use http://www.clearstation.com , http://www.fool.com ,http://www.nasdaq.com , http://quote.yahoo.com/q?s=tlnt&d=1d . Reading their latest accounts can make you wonder why you are trading this stock.

Trading times from UK in UK time. Trading software starts at 12:05pm, connection to ISLD servers about 15mins later. There is not much happening but you can put your bids/asks in level II through ISLD. At around 12:30pm MM's bid/ask goes into level II and you may see more ECN bid/asks (most MM's will not trade in pre market). Note that some trading software may not allow the full time in pre and after hours trading and may have limited access to ECN's books.
More activity begins at about 1pm (official market starts at 2:30pm). I have found that I finish most of my trading in penny stocks before the official market starts.
Sometimes, about 40 minutes before the official close (9pm) I will watch those penny stocks that have risen a lot during the day and have started to weaken, with those traders that have jumped in at too high a price getting ready to unload their positions or traders wanting to take their profit, going flat at the end of day. You can get an over reaction as they all pile in, selling at any price. So I may put some bids in well below market. As the ECN bids start to disappear you can sometimes get filled at a very good price. One big disadvantage of putting your bid/ask directly in the market is that some one may fill you with only 3 shares a $0.30. Then you will have 3 shares costing you $0.90 plus your broker's fee, which may be $15. I have had some one part fill me with 15 shares at $0.54. There is trading software that may give you an AON (all or none facility) but mine just does it with an ECN, which is not as popular as ISLD.
Some brokers also charge you extra if you buy more than a 1000 shares. Which is easily done with penny stocks. I'm charged $0.0035 cents a share in excess of 1000 shares with a maximum charge not to exceed $3.50. So I'm usually charged an extra $7 on my penny share trades.

Before I start my day at about 08:00am UK time in the morning I search ISLD after hours to see what shares have gained and may be worth looking at, don't forget in UK ISLD finishes at 1am in the morning, so you can trade up until that time if you want. http://toplist.island.com/toplist/top20.jsp?AH=on and NASDAQ
http://dynamic.nasdaq.com/dynamic/afterhourma.htm . There is also a web site with daily lists for penny stock forecasts. They usually get them wrong but are very good at giving you ideas for what stocks to look at http://www.stock100.com/

The stocks I trade are usually on NASDAQ. I did try NYSE using an ECN but that's not much use if there are no other ECNS with bid/asks on that stock. The other alternative was to place a limit order not using an ECN in the market which eventually gets picked up by a specialist. They are not as quick as an ECN and if your trading on that specialist's bid/ask you will usually get filled in a few seconds. When I was trading KGC (gold spike) I bought through an ECN but had to sell through a specialist as there were no ECN bids. One main problem was that you don't get to see the depth of the specialist's book. Which is a bit like driving a car at midnight with no lights. So I tend to keep out of NYSE penny stocks (site for gold futures prices http://www.nymex.com/ )

There are also stocks on OTCBB, Over the Counter Bulleting Board, http://www.otcbb.com/dynamic/ the software I have doesn't allow me to day trade these. I think that they are stocks that have been delisted from NASDAQ. I'm unsure exactly how they work. Perhaps some one may post on OTCBB trading.

Penny stocks aren't for the faint heated. Are very volatile and can go bust. I've seen stocks go from $0.30 to $1.27 in a day and drop a similar amount. Some securities seem to go up for no reason at all. I watched PCTH go up to $0.29 and back down to $0.22 on Friday and haven't a clue why. I prefer to have good reasons before opening a penny stock day trade. There will not be any institutions trading these stocks and MM's may have difficulty trying to manipulate them although I have seen them and ECN's put in large buy orders trying to push the stock higher. Rumours are rife with folks saying the stocks going bust when they want to buy or higher when selling. I tend to ignore them and base my trades on the facts in front of me at that moment. Although I don't ignore the rumours completely. They can be useful if folks are jumping in to buy on a rumour and I see the momentum there I may move in and out of that stock quickly. On Friday there was a stock suspend on rumours that it was going bust. The price was around $7.50. They were false rumours and when the price reopened it dropped to around $6 then back up the $7+. It was a NYSE stock, although there were ECN ISLD bid/asks I kept out of that one.

There are very rarely any stocks to short available, if there is it is usually on the $1+ stocks. It seems that I have to continually search for new penny stocks, as ones that have been in the news and heavily traded appear to end up with large similar amounts of bid/asks stacked up on either side on level II with not much manoverability to trade, unless some more news hits it. There is a penny stock site at fool.com but it only has 36 posts since 1999. http://boards.fool.com/Messages.asp?mid=11085972&bid=111596

In the UK the official USA market doesn't start until 2:30pm so they give me something to play with and they are an extra item to trade. My overall intention in trading is to have the ability to trade any item that is moving such as gold, platinum, oil, currencies, commodities etc, with the tools at hand to trade and research them.
So if the price of gold moves again I have a list of gold stocks which are highly leveraged to the gold price and haven't sold too much forward and the web sites with the futures and spot prices to look at. Sure the gold mine stocks that I have looked at now may be of no relevance in the future but they give me an idea of the direction to go.

Regards
Ken
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