Friday, January 22, 2010

Playing the penny game with ethics intact?

So, is there a way to become involved in the world of penny stocking and remain clean?

Yes there is!

You can learn to short sell stocks that are promoted and nearing a big fall, or buy them very early on in the promotion long, and bank coin.

One person who has done this successfully in recent years and blogs about it is Timothy Sykes, a former hedge fund owner who experienced the big bull market of the late 90's and made money for himself with penny plays during that period, probably buying breakouts long for the most part. Today, he usually shorts these plays with chart patterns that he knows by heart with attendant details surrounding that security that fit the mold.

One of the main purposes of my interent musings will be to demonstrate these methods in action.

I have never subscribed to Tim's services, but I have learned quit a bit from him indirectly in the past 2 years and am often able to key in onto the same plays/setups that he uses due to analyzing his past trades. You will find a link to his presence on the web below:
Another person who has learned a lot from Sykes as a "student" is Reaper, who resides at:
I personally observed (with a bit of hindsight as I did not know it in linear time but was watching a live candlestick chart of the ticker symbol and live time and sales info) Reaper make a play to short a pump and dump gimmick play by a firm that used a link with a date and time refresh your browser plea that caught the promoters off guard and netted him a tidy sum of over 17K!

By learning to understand human nature as it relates to the stock market, you can learn to seize opportunities in the game like never before. Once you understand that penny players are amateurs, playing a different game from big institutional names, that knowledge can give you an edge in your trades. If you learn to exploit their emotional tendencies as applied to their investment decisions, you can really make some easy calls.

Playing situation oriented highly liquid (currently) penny stocks that experience a predictable ill-fated life cycle makes a lot more sense than dealing in so wet they drip ETFs which pit you against professionals and worse, they experience daily moves that are mostly random and thus are less predictable. 

Author Michael Parness, whose interesting stock market book for newbies called "Rule the Freakin' Markets", sees him profess that he would not suggest that you as a good trader play the pennies. I profoundly disagree, respectfully. In my opinion, based on my own recent performance and witnessing of the same from others, such as the personalities mentioned above, nothing could be further from the truth!

Parness says he would not wish to take advantage or poor, desparate, ignorant people. But if you short sell, or even if you buy long very early and get out early, you are NOT contributing to any taking advantage of suckers. They are being suckered in spite of you, and as my other post on my experience on Yahoo's message boards indicates, they will not listen anyway.

Strangely, the author notes elsewhere in his book as possible play with full ethics intact as shorting a low priced, low rent district exchange bio tech stock that claims to have some new miracle cure. This is one of the bread and butter plays of people like us! 

Yes, it is true unscrupulous penny pumpers and firms take advantage of the naive. It has been done since the time of Darvis as I outlined in an earlier post, and it will continue as long as the Sun burns as human nature assures that.

If *you* are not promoting these slimy companies yourself, if you have not front ran your picks, (as some of them are said to do, admitted by their disclosures and disclaimers) and are merely playing a long or short, as any old Joe with an E-trade account can equally do with information freely available to all with no insider trading, it does NOT make you a penny stock fraud artist of any kind or even minimally unethical!

You are merely catching a ride of opportunity on a stock price direction that is likely to happen no matter what you do...

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