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Invest in Penny StocksA G U ID E TO P R O F I TA BLE T RA DI N GPeter LeedsJohn Wiley & Sons, Inc.ffirs.indd i1/6/11 10:36:32 AM
Copyright 2011 by Peter Leeds. All rights reserved.Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording, scanning, or otherwise, except as permitted under Section 107 or108 of the 1976 United States Copyright Act, without either the prior writtenpermission of the Publisher, or authorization through payment of the appropriateper-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive,Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressedto the Permissions Department, John Wiley & Sons, Inc., 111 River Street,Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.Limit of Liability/Disclaimer of Warranty: While the publisher and author haveused their best efforts in preparing this book, they make no representationsor warranties with respect to the accuracy or completeness of the contents ofthis book and specifically disclaim any implied warranties of merchantabilityor fitness for a particular purpose. No warranty may be created or extendedby sales representatives or written sales materials. The advice and strategiescontained herein may not be suitable for your situation. You should consult witha professional where appropriate. Neither the publisher nor author shall be liablefor any loss of profit or any other commercial damages, including but not limitedto special, incidental, consequential, or other damages.For general information on our other products and services or for technicalsupport, please contact our Customer Care Department within the United Statesat (800) 762-2974, outside the United States at (317) 572-3993 orfax (317) 572-4002.Wiley also publishes its books in a variety of electronic formats. Some content thatappears in print may not be available in electronic books. For more informationabout Wiley products, visit our web site at www.wiley.com.Library of Congress Cataloging-in-Publication Data:Leeds, Peter.Invest in penny stocks : a guide to profitable trading / Peter Leeds.p. cm.Includes index.ISBN 978-0-470-93218-6 (cloth); ISBN 978-1-118-01327-4 (ebk);ISBN 978-1-118-01328-1 (ebk); ISBN 978-1-118-01329-8 (ebk)1. Penny stocks. 2. Investments. I. Title.HG6041.L443 2011332.63’22--dc222010042168Printed in the United States of America10 9 8 7 6 5 4 3 2 1ffirs.indd ii1/6/11 10:36:33 AM
For my wife—a heroic woman whose patience and wisdomare without equal.ffirs.indd iii1/6/11 10:36:34 AM
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ContentsPrefaceviiExperience Level Rating System (EL)ixChapter 1The Big Business of Penny Stocks1Penny Stocks Are Big BusinessChapter 2Getting Started in Penny Stocks15Chapter 3Avoid Your Rough Start25My Rocky StartChapter 4Leeds Analysis51What Leeds Analysis Can DoChapter 5Third Level Analysis59Welcome to Third Level AnalysisChapter 6Fundamental Analysis71The Importance of FundamentalsChapter 7Share Structure125Shares—Starting from the Beginningvtoc.indd v1/6/11 10:37:34 AM
ContentsChapter 8Technical Analysis139Welcome to Technical AnalysisConclusion The Way of Penny Stocks183Acknowledgments187About the Author189Get More from Peter Leeds!191Index193vitoc.indd vi1/6/11 10:37:34 AM
Preface“Most of the greatest stocks started small.”—Peter LeedsImagine a company that was debt free, was extremely profitable,and owned an incredible new technology.What if that investment was trading for pennies? You couldinvest a small amount, and walk away with a small fortune.Would you be able to find that company? Thanks to Invest inPenny Stocks, now you will.Let me take you on a journey into the world of high-flying pennystocks. Come with me as I walk through every aspect of these exciting investments, from the very beginning.You will learn: How to find the highest quality penny stocksWhich penny stocks to avoidHow to trade risk-freeThe best buying pricesWhen to take profitsI’ll also introduce you to Leeds Analysis. This system allows youto find penny stocks that are about to jump up in price, and helpsyou get involved before the rest of the investment world.I’ve also included many of my favorite Trading Tactics, whichcould supercharge your investing results just as they have for me.The appetite for penny stocks is higher than it’s ever been.Unfortunately, most people are buying the wrong shares and atviifpref.indd vii1/6/11 10:37:14 AM
Prefacethe wrong prices. I’ve written this book to help you invest in pennystocks the right way.Have fun, and at any point feel free to get in touch with medirectly. I can’t wait to hear your success stories.Best wishes,Peter LeedsThe Penny Stock Professionalwww.PeterLeeds.com1.866.My.Leeds (1.866.695.3337)viiifpref.indd viii1/6/11 10:37:15 AM
Experience LevelRating System (EL)Invest in Penny Stocks is meant to be a simplified, easy-to-understandbook that explains a wide range of topics of varying complexity.Given the various degrees of skill level of the readership, notall concepts need to be read by everyone. An experienced traderalready knows the difference between market and limit orders,whereas that section will be very significant for new investors.More experienced investors may want to skip some of the simpler sections if they already have an understanding of the topic.Newer investors may want to leave the more complex sectionsfor last, until they’ve gotten a grasp of the less-advanced supportingideas.Experience Level 1: There is no complexity ordifficulty to these sections at all.Experience Level 2: Even brand-new investorswill have no trouble with these ideas.Experience Level 3: These are very beneficialconcepts that are not difficult to understand.ixflast.indd ix1/6/11 10:36:54 AM
Experience Level Rating System (EL)Experience Level 4: Even experienced traderswill benefit from these sections.Experience Level 5: These are the most complicatedsections.xflast.indd x1/6/11 10:36:55 AM
1C H A P T E RThe Big Business of Penny StocksPEN N Y ST O C K S A RE B IG B USINESSThey may sound small, but penny stocks are big business. The phrase “penny stocks” is one of the most popular financial searches on the Internet. In fact, it gets more searches thanterms like “stock picks,” “stock quotes,” “New York Stock Exchange,”or “stock broker.”This translates into tens of millions of investors in America, andmillions more worldwide, actively searching for information and guidance on penny stocks. Unfortunately, hidden motivations abound,and misinformation outweighs the amount of proper analysis. As thePenny Stock Professional, I am actively working to change this state ofaffairs.My team and I help people avoid some of the common dangers,and find the best penny stock companies with the greatest upside.You’ll find that it is quite simple—it’s extremely lucrative to getinvolved with the best 5 percent of penny stocks. These companieswill have: Strong management teams Good upside potential Proven revenues1CH001.indd 110/01/11 6:08 AM
Invest in Penny Stocks Patented technologies Solid financial trendsFinding and investing in the best penny stocks is one of themost lucrative ways to make money on the stock market, or to makemoney at anything for that matter.Broad Appeal of Penny StocksI love the broad appeal of penny stocks. Unlike most investmentvehicles, which get the attention only of specific types of people,penny stocks seem to generate interest among all types of investors,of all skill levels and all financial situations.If you are a beginner, you’ll learn about trading quite quickly,because penny stocks move faster and are more volatile than moreconventional investments. Your learning curve will be much shorterthan if you just put money into IBM and let it sit there for a yearor two.If you have limited funds to invest, penny stocks give you thepotential of actually making something out of your money. A 1,000investment can multiply many times over, compared to putting thatcash into a slow-moving blue chip or a super-safe bond, even if youlet it sit there for years and years.If you are an experienced trader, penny stocks are appropriatefor a portion of your portfolio because they add excitement andbig-gain potential to your investments.If you know what to look for, and thus get involved with reallyhigh-quality companies, it can translate into massive gains. So manyof these high-quality penny stocks are trading for pennies a sharesimply because they are: OverlookedUndiscoveredUnfairly valuedSold off in sympathy with a sector or the overall market2CH001.indd 210/01/11 6:08 AM
The Big Business of Penny StocksLook, I’ve been involved with investing from all angles, and stillam, including: Real estateDerivatives/optionsPenny stocksLarge-cap stocksBased on extensive personal experience, and the many years ofanalysis/research/editing I’ve done at PeterLeeds.com, I’ve cometo the rock-solid conclusion that:Penny stocks are the most lucrative and realistic method forbuilding wealth that I’ve encountered.With penny stocks, gains come more rapidly and the returns aregreater. What’s the point of putting 500 on some massivecompany, and a year later you’ve made 10 or 15 percent onyour money? And that’s considered a good return? Hello, 45bucks—big deal!All you’ve done is tied up your money for a year to make aninsignificant profit (or maybe even took a loss) and givenup the opportunity to have that 500 potentially do something more. Maybe something much more.Especially if you have a small portfolio, the gains you will probably get from blue-chip stocks are going to seem insignificant. They aren’t going to change your life. There’s noexcitement in it.Yet people are afraid of penny stocks, and might argue thatblue-chip stocks, like GM and IBM and Exxon, are betterinvestments because they’re based on better companies.Yes, blue chips are a lot better than 95 percent of the pennystocks out there. However, in terms of upside potential,growth of your investment, and life-changing profits, the 5percent of penny stocks that make the Leeds Analysis cutrepresent far more compelling investments, and very often3CH001.indd 310/01/11 6:08 AM
Invest in Penny Stocksare far superior companies. They’re just smaller. Muchsmaller. And the best part is once you find these high-quality penny stocks, you get to pick them up for pennies ashare!As the Penny Stock Professional, my job is to help steer youtoward the 5 percent of penny stocks that may dramaticallyoutperform every other investment option that’s out there,including so-called “safe” blue chips.The 5 Percent RuleOnly about 5 percent of penny stocks pass Leeds Analysis. Thosethat pass the test are: Significantly more likely to outperform the restFundamentally very strongLess likely to suffer downside price movesMore likely to enjoy massive upside potentialSome of the criteria we look for with Leeds Analysis include, butare not limited to: Strong management teamsA track record of gains in revenuesAccelerating increases in earningsHigh barriers to entry to the industryCompany approaching profitability or already profitableLow or no debt loadPatented technologies and/or strong intellectual propertyrights Involvement in a growing industry or market Strong and long-term competitive advantages Superior and effective branding, positioning, and marketing4CH001.indd 410/01/11 6:08 AM
The Big Business of Penny StocksABT - Absolute Software turned a small investment into a small fortune!Investors watched their moneymultiplying like crazy!Leeds Analysissaid “buy”at 80 centsInitial investmentis already up5 times over! 2,100quicklybecame 105,000Trading VolumeOne man was up 500,000 on ABT45.0040.0035.0030.0025.0020.0015.0010.005.001.2 M800 M400 MFigure 1.1 Absolute Software TradingSubscribers to Peter Leeds may remember some of the homeruns we’ve hit using Leeds Analysis, like Absolute Software, whichwent from 0.80 to 40.64! (split adjusted). (See Figure 1.1.)Another great example, Disc Inc., spiked from only 0.38 per shareall the way up to 9.93 for a 2,500 percent gain! (See Figure 1.2.)DCSR - When Disc Inc. started moving, it spiked rapidly in price!This is how overnightmillionaires are born!You’re buyingshares for penniesYou’ve multiplied your money already,but DCSR is just getting startedTrading VolumeLeeds Analysis spotted this one at 38 cents per share!9.008.007.006.005.004.003.002.001.00750 M500 M250 MFigure 1.2 Disc Inc. Trading5CH001.indd 510/01/11 6:08 AM
Invest in Penny StocksFORD - Forward Industries made profits of 2,885% for Peter Leeds subscribers and cashing outat 29.85 here You’re buyingin at 1.00 here Trading VolumeLeeds Analysis continually finds penny stocks like FORD27.0024.0021.0018.0015.0012.009.006.003.006.0 M4.0 M2.0 MFigure 1.3 Forward Industries TradingOr take Forward Industries, which we revealed to Peter Leedssubscribers when it was trading at 1.00, before it absolutely explodedto 29.85 for a total gain of 2,885 percent! (See Figure 1.3.)You wouldn’t see gains like that in IBM or Exxon even if youwaited a lifetime!Trading Tactics: Averaging DownAveraging down means buying more shares of a stock you already ownif the price has dropped since you originally bought it. This tactic lowersyour average price paid per share, but increases your exposure.For example, you buy 2,000 shares at 2.00, and weeks later thestock drops to 1.00. If you buy another 2,000 shares at 1.00, youraverage price per share for the 4,000 units is now 1.50. In other words,if the shares make it back to 1.50, you are breaking even overall.(However, you now have an additional 2,000 invested.)I have personally seen people average all the way down, withthree or four or five new buy orders over months or years. They lost theirshirts on stocks like Nortel and some of the Internet high-flyers.6CH001.indd 610/01/11 6:08 AM
The Big Business of Penny StocksTrading Tactics: Averaging Down (Continued )Investors usually average down to make up for a bad tradingdecision. This can get pretty ugly when a stock is nose-diving towardzero, as they throw good money after bad.I don’t support the concept of averaging down. In fact, if youabide by the methodology of limiting losses that we describe later,you won’t be in a position where you’d need to average down,because you already would have jumped from that sinking ship.Bad investors average down, buying more shares of a falling stockto decrease the average price per share they’ve paid. This strategyis hardly ever effective. In addition, it magnifies your losses if the stockkeeps dropping. Nevertheless, individual investors seem to continuallyengage in this practice.When I trade, I’m much more likely to average up. I’ll acquire moreshares as the stock price climbs and the momentum of the companyrises. The increasing share price is a confirmation of the success ofmy original analysis, and the company’s progress, rather than a profittaking opportunity.Penny Stock PhobiaPeople have a phobia of penny stocks. This fear has been instilledin them because they hear a lot of bad stories about people whohave been “swindled,” “ripped off,” or otherwise “scammed.” Otherpeople may have had personal experiences, or heard stories of others that ended with lost money.These may have been real experiences, and real stories, andthat doesn’t surprise me at all. I am telling you that most peoplewho trade penny stocks lose money. This is almost always becausethey invest: For the wrong reasons At the wrong time (Most notably) in the wrong companies7CH001.indd 710/01/11 6:08 AM
Invest in Penny StocksFor every nine people losing 1 on the market, the tenth personis making 9. That tenth person could be you, if you learn to invest: For the right reasons At the right time (Most notably) in the right companiesThis book, with its explanation of Leeds Analysis, will help you dothat. Not everyone is successful with it, and penny stocks can goup or down in price. However, I do have a track record of peoplewhom I don’t even know, who’ve never met me, sending me pictures of boats and cars and other things they bought with moneythey made trading penny stocks based on my guidance.Some of these people have followed my picks at my online newsletter, Peter Leeds Penny Stocks. Others have read my earlier book,Understanding Penny Stocks. However they came to their penny stocksuccesses, each one of them proves even more that Leeds Analysisworks and can give investors of all experience levels, and from allwalks of life, an unfair financial advantage.Penny Stocks May Not Be for YouPenny stocks might not be an appropriate investment vehicle foryou, based on your experience level, risk tolerance, or personalinvestment strategy.It’s important that you know when not to trade penny stocks: You’re losing sleep at night because you’re stressed out. You wind up fighting with your spouse about it. You think about it so much that you aren’t paying attentionto your family. Your mind wanders while you’re at work.If you find yourself thinking about your penny stock investments too frequently, this type of investing may not be right for8CH001.indd 810/01/11 6:08 AM
The Big Business of Penny Stocksyou. Of course, this doesn’t apply to plain excitement, when yourpenny stocks are multiplying in value and your constant thoughtsare positive ones. Rather, it’s when negative associations start cropping up that you may want to take a break from the world of lowpriced shares.It is also important to have realistic expectations. A lot of lessexperienced investors think they can turn 1,000 into a millionbucks just by trading penny stocks. Many people have great successstories and make a lot of money, but it’s not realistic to expect tomake such ridiculous amounts.Yes, technically, it is possible. It has happened. Of course, thoseare extremely rare situations. That will not happen to you. If youprove me wrong, that’s fantastic, but it is not helpful to expect sucha monumental degree of success. It’s important that you have realistic expectations.Penny stocks go up in value very frequently, doubling or tripling in price. Very often penny stocks go down in price. Youneed to have a good comprehension of this. Don’t enter thepenny stock arena until you’re ready to approach it with a sensibleunderstanding.You should get involved with penny stocks only with risk money,especially at first and certainly if you’re a less experienced trader.Don’t put money into penny stocks that you need for your children’s education, or your retirement, or your mortgage. In otherwords, never put your grocery money into the stock market.Should you talk to your financial planner? Absolutely. You couldtalk to them about penny stocks, but I’ll save you the trip. I’ll tellyou what they’ll say: “No, it’s dangerous.” “It’s ridiculous.” “Stay away from penny stocks.”Hey, I actually happen to agree with them! Penny stocks are dangerous, and ridiculous, and you should stay away from them. Most9CH001.indd 910/01/11 6:08 AM
Invest in Penny Stockspenny stocks will potentially cost you money. In that sense, I agreewith the doom-saying financial planners.Where I diverge from their generalized opinion is as follows:Once you know how to find the 5 percent of penny stocks that represent high-quality investments, penny stock investing becomes possibly the most lucrative way to build wealth.I Do Not Give AdviceUnderstand that anything you read or hear from me is not advice. Idon’t give advice. I don’t know you. I don’t know your trading style,your financial situation, or your time outlook (long term, shortterm, day trader). I can’t know
ffirs.indd ii 1/6/11 10:36:33 AM. For my wife— a heroic woman whose patience and wisdom are without equal. ffirs.indd iii 1/6/11 10:36:34 AM. ffirs.indd iv 1/6/11 10:36:34 AM. v Contents Preface vii Experience Level Rating System (EL) ix Chapter 1 The Big Business of Penny Stocks 1
For the purposes of understanding Penny Stocks, I will treat any share that trades under 2.00 as a penny stock. Strangely, there is no official definition for penny stocks. There are three different criteria that various individuals and organizations use to define penny stocks. What is considered a penny stock really depends with whom you are .
Best Strategy for Trading Penny Stock Alerts 68 Strategy #7. Best Strategy for Trading The Penny Stock Pump & Dump 76 Strategy #8. Best Time to Buy or Sell a Penny Stock 82 Strategy #9. Best Strategy for Making Profits With .0001 Penny Stocks 87 Strategy #10. Best Penny Stock Exit Strategy for Maximum Risk Reduction 91 i. Introduction ii.
Penny Stocks, I will treat any share that trades under 2.00 as a penny stock. Strangely, there is no official definition for penny stocks. There are three different criteria that various individuals and organizations use to define penny stocks. What is consid
penny stocks by studying the underlying reasons why penny stock SEOs are conducted. We find no evidence that the market-timing or life-cycle theories can explain the probability of SEOs among penny stocks. At the same time, we find evidence that penny
aggregate market capitalization for penny stocks declined by 10.91 billion, representing about 10% of the market capitalization for that sector and 0.3% of the total market capitalization of the Main Board.Sixty-six stocks (62 of which were penny stocks) suffered a decline
drop in or out of the definition of 'penny stock' over time. What may be a "penny stock" when the market open in the morning, may not be a penny stock by noon. In some cases the definition of penny stock is generated by a combination of the above criteria. For example, any stock trading on the OTC-BB with a market cap of less than 20 million .
market cap between 50 and 300 million. And small‐cap penny stocks have a market cap between 300 million and 2 billion. Again, we consider ALL of these “penny stocks” As far as the actual price of the penny stock, yo
TITLE V-PENNY STOCK REFORM Sec. 501. Short title. Sec. 502. Findings. Sec. 503. Definition of penny stock. Sec. 504. Expansion of section 15(b) sanction authority with respect to penny stocks. Sec. 505. Requirements for brokers and dealers of penny stocks. Sec. 506. Development of automated quota
