If you follow market news and mainstream media, you probably think that tomorrow the market will crash and the world will end.
But that’s not how it looks in penny stock land…
Look at Sonnet BioTherapeutics Holdings, Inc. (NASDAQ: SONN) and AgEagle Aerial Systems, Inc. (NYSE: UAVS) yesterday. They were up over 100% and 30% respectively.
There are so many opportunities right now. But trading this niche is RISKY. I always expect the worst from penny stocks…
So how can you stay safe while trading them? Keep reading and I’ll share the two dangers you must know — and the fast, easy way to spot them.
Stock Dilution
Whenever sketchy penny stocks run on news or hot sector momentum, they’ll take advantage of it — and you!
How?
Companies create more shares to sell to investors and traders so they can pocket profits. Meanwhile, the value of existing shares drops because the company spreads its value over more shares.
Anyone holding shares typically loses money on their position.
I gave a detailed explanation about dilution in the SteadyTrade Team webinar yesterday. (Members can watch the replay here.)
Now, if you’re concerned about dilution, you might want to avoid penny stocks. Like a SteadyTrade Team member put it yesterday: Learning about dilution is like learning how hot dogs are made.
In other words: It’s not pretty.
But potential dilution is one of the risks we take trading these sketchy stocks.
You have to accept it. But there are ways you can protect yourself from getting crushed by an offering announcement…
- Stick to day trades only. Companies usually announce offerings in premarket or after hours. Those are illiquid trading times when it can be tough to exit positions quickly. So avoid trading during these times and…
- Don’t hold penny stocks overnight. Dilution is why we never hold money-losing biotechs overnight. The risk of an offering is high since these companies typically have no income. Selling shares is the only way they generate capital and stay in business.
- Get news FAST. When a company announces an offering, the price almost always drops. The best way to avoid getting caught in one is to get your news FAST! That way you avoid a bad trade or exit a position with minimal losses.
The Breaking News Chat team alerted Imperial Petroleum Inc.’s (NASDAQ: IMPP) offering news yesterday — before the company even dropped a PR! Check it out…
The company’s prospectus says it wants to sell over 18 million shares. The price of the offering is still unknown. But having a head start on other traders can be a game-changer. Unless traders dig through SEC filings, they have no idea what’s coming!
Another danger you can get alerted to is my nemesis…
The Chat Pump
I’ve shared countless examples of failed chat pumps in past issues of this newsletter … Like the February 14 issue where I went over BRC Inc. (NYSE: BRCC) and Modular Medical, Inc. (NASDAQ: MODD).
The Breaking News Chat team alerted both as chat pumps on February 11. Both failed at the open and faded the rest of the day.
Since Camber Energy, Inc. (NYSE: CEI) failed last October, pumpers don’t have as much juice. Usually, a stock will spike in premarket on the pump announcement … Then, nine out of 10 times, it fails at the open.
But the odd time — that one out of 10 — it can spike and squeeze.
Look at Akanda Corp. Common Shares (NASDAQ: AKAN) yesterday. The Breaking News Chat team alerted it when the chat leader took a position…
And when they added to their position…
AKAN’s a recent IPO from Tuesday. On its first trading day, it tanked from $31 to almost $8. It was full of short sellers and had a massive morning short squeeze. But after the morning squeeze, it tanked back to below its premarket lows.
Is it worth the risk to trade the one chat pump that spiked out the scores that fail? That’s up to you to decide based on your experience and risk tolerance.
And the way to make the best decision is by having all the information and news you need. That way you can determine which setups are best for you and which to avoid.
You can try to follow every chat room and Twitter feed and constantly refresh the news and SEC website — or you can use Breaking News Chat.
It’s the fastest and easiest way to get alerted to penny stock dangers and opportunities.
Stay safe out there. And join me live on Instagram for Q&A every trading day at 12:30 p.m. Eastern!
Tim Bohen
Lead Trainer, StocksToTrade