Trading a Promoted Stocks – Taking a position in a stock that is being promoted is an extreme risky task. If you have little experience trading in the OTCBB or Pinks, you should completely avoid stocks that are being promoted. However, there are some stock promoters that provide great opportunities for large profits if you are a skillful trader.
The trader who follows these top ten tips will maximize their potential profits and minimize their potentials losses.
10 – Determine if the stock promoter has a good or bad reputation before buying.
Like anything else, there are promoters who provide a window of opportunity to profit and there a promoters who will trap their subscribers in a trades that always result in losses. It should be noted that there is a very small ratio of good promoters and bad promoters, a reasonable estimate is 1:10.
9 – Recognize that once the promotion is over, it is almost certain that the share price of the promoted stock will plummet price levels at or before the stock promotion began.
One of the skills needed to successfully trade a promoted stock is choosing a point to sell before the inevitable mass sell-off by the promoters and the other traders who purchased at a higher prices.
8 – Never believe the hype found in promotional newsletters.
It is tempting to believe that the company that is being promoted is about to deliver a fanstastic product to the market. It also tempting to believe the promoters when they say that the promoted company’s share price will continue upward for a long period of time. Trusting a stock promoter’s claims is a bad choice and will result in large losses of your investment.
7 – Set limit sells immediately after buying.
It is important to set your limit sell orders as soon as your have your buy order filled. If you happen to buy into a good stock promotion, the share price will increase fast and it gets harder to make yourself sell when you see your potential profit increasing steadily. Set a limit sell at a certain percentage gain over your buy price lock in the gain. Our free tool TradeSheet was designed specifically to help traders determine exit points based on their entry prices.
6 – Realize that a single promoter will use many different names.
Stock promoters typically use several different names or aliases. By using several aliases the promoter aims to mislead investors by claiming that a stock is receiving additional attention from other stock promoters when in fact it the same promoter. It is important to determine which aliases a stock promoter will use during any given promotion.
5 – Always read the stock promotion’s disclaimer.
By SEC law, all stock promoters must disclose any and all compensation they receive for their promotional services. This disclaimer can reveal important information the trader can use. If the stock promoter has been compensated in shares of the company’s stock trader can expect that their will be large blocks of shares being sold sometime after the promotion begins. If the promoter receive cash compensation then the trader can expect the stock promotion length to be propertional to the amount paid. Read more about SEC rule 17 (b).
4 – Never think you are the first one in.
No matter how fast you get your buy order filled there will always be someone who got in at a much lower price. Stock promoters are typically compensated in shares of the company before the promotion begins. This allows the promoter to sell into the initial buy-volume that the stock promotion will generate. If the promoter wants to cash out quickly they will do so at your expense.
3 – Learn to recognize when the window of opportunity has passed.
There is usually a very small time-frame that allows for a profitable trade. With most stock promotions this window of opportunity is during the first few minutes after the opening bell. The share prices of stock that are being promoted typically make their most significant moves as soon as the trading session opens or after the first newsletter of a new promotion has been released. Learning to recognize the most opportune time to take a position and recognizing when that opportunity has passed is a skill that must be developed in order to profit from these plays.
2 – If you happen to hold your position for an extended period of time there is the possibility that the stock may be halted.
Although this is uncommon, it is not unheard of. A combination of poor financial reporting by the company mixed in with a stock promotion will definitely draw the attention of SEC officials. If the stock does get halted, expect a large sell-off on the first day after the halt is lifted which will typically continue for several days, weeks, or even months.
1 – Do not trade promoted stocks without sufficient experience.
Trading promoted stocks is risky because of the heavy influence stock promotions has on share price. Unless the trader has many years of experience trading in the OTCBB, they should avoid all promoted stocks.
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