Trader Tips
Jul. 26, 20218 min read

OTCs 3 Ways: Bohen’s Top Strategies for Trading Non-Listed Stocks

Tim BohenAvatar
Written by Tim Bohen

A lot of traders ask me for OTC trading strategies…

When it comes to trading, I’m like a boring old man. I don’t like to reinvent the wheel. I like to stick to a few key strategies. If it ain’t broke, don’t fix it! 

OTC (over-the-counter) stocks come up a lot in my Pre-Market Prep sessions — with good reason. They can experience huge price spikes. That’s appealing to traders attempting to grow their accounts. 

The problem? They’re extremely illiquid in the premarket, so it’s hard to review OTC data before the market opens. 

My usual response to traders interested in OTCs? Stick to a few standard approaches:

  • If you took the gap, sell the gap
  • Look for morning panics 
  • Look for the afternoon OTSwizzle

Not sure what any of it means? Let’s dig in.

What Are OTC Stocks?

To understand OTC stocks, you must understand where they trade — OTC markets. 

OTC markets are different from major stock exchanges like the New York Stock Exchange (NYSE) and the Nasdaq. They’re off-exchange markets where stock shares are bought and sold through broker-dealer networks. 

A broker-dealer is an entity registered with the Security Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) that buys and sells stocks or other securities.

A broker-dealer network is a bunch of these broker-dealers working together.

There are four groups: OTC Best Market (OTCQX), the OTC Bulletin Board (OTCQB), the pink sheets (OTCPK), and the grey sheets (GREY). 

And all together, there are over 10,000 OTC stocks. 

Want to beef up on OTC specifics? Check out this post

Let me blunt — OTC stocks and markets don’t have a sterling reputation. That’s because they’re not as highly regulated as the major exchanges. 

As a result, you’re often looking at less desirable stocks. Shell companies, delisted companies, companies that failed to meet reporting requirements, or companies on the verge of or even in bankruptcy — you’ll find them all on OTC exchanges. 

They’re not all junk, though. For example, the American depositary receipts (ADRs) of many companies trade on OTC markets.

How to Find OTC Stocks to Trade

Just because we’ve had hot OTC runners in the past doesn’t mean you can just pick any OTC stock and trade it. 

First, make sure you have an OTC-compatible broker — don’t assume yours supports OTC stocks. 

Also, be sure to build a case for every trade. 

In this post, I talk about how every potential trade needs to check the boxes. I think this is a pivotal post every trader should read. If a stock doesn’t meet basic criteria — like having a catalyst and plenty of liquidity — take a long, hard look at why you’re trading.  

Finding OTC Stocks to Trade

OK! Ready to start scanning for hot OTCs?

Here’s a tip: You can scan for OTC stocks on the StocksToTrade platform. And you’ll also have access to amazing charts, 40+ built-in scans, news feeds, and so much more. Try it now for 14 days for only $7!  

Or you can get a 14-day trial of StocksToTrade with the Breaking News Chat add-on for just $17.

I also have a NO-COST weekly watchlist — subscribe now!

My Top Strategies for Trading OTCs

Let’s say you found a hot OTC runner, but you’re not sure about your next step. Here are my three standard approaches for trading them…

OTC Trading Strategy #1: If You Took the Gap, Sell the Gap

Did you take the gap?

No, I’m not talking about the clothing store. 

In trading, the gap refers to the difference between a stock’s price at the previous close and the next day’s opening price. A gapper is a stock that gaps up from the last day’s closing price.

When a stock gaps, it could go in one of two directions. It could either keep going … or crap out. 

With OTCs, it’s more often the latter. That’s why my standard approach is if you bought the gap, sell the gap. 

OTC Trading Strategy #2: Look for Morning Panic Dip Buys 

Morning panic dip buys are a favorite of many OTC traders and small-account traders

My regular followers know that I’m a huge fan of another morning pattern, the dip and rip. While they might sound similar, don’t confuse it with the morning panic dip buy. There’s a big difference.

  • The dip and rip is a pattern where you buy into strength. 
  • With the morning panic dip buy, you buy into weakness. 

With morning panics, the stocks tend to bounce, then fade later in the day. 

When looking for a morning panic, you want to try to find a stock that has been uptrending for days or weeks. It’s gapping up and closing at or near the high of the day. 

Then, you stalk it. 

The magic happens when buyers keep rushing in, thinking the stock will only go up. It won’t. The big panic will come eventually. 

When an OTC has that panic, a trader could buy into the panic and then sell into the bounce that usually follows. Of course, it’s important to have a stop in place. And be prepared to cut losses if that bounce doesn’t come.

Learn more about the morning panic pattern here:

OTC Trading Strategy #3: Look for the Afternoon OTSwizzle Pattern

I’m big on second chances with stocks. So if an OTC doesn’t have a morning panic, look for the afternoon OTSwizzle.

The OTSwizzle is a pattern coined by trader Dom Mastromatteo, who’s been on the SteadyTrade podcast a few times. He explains it thoroughly in this episode of TWIST:

With this pattern, you look for a stock that has a morning spike, which then goes sideways for an extended period in between a range. 

Then — usually in the afternoon — you’re looking to buy the upper part of the range, often a high-of-day break. And you risk the bottom end of that channel. If it works as planned, you ideally sell into strength. 

The benefit of this pattern is it can give you time to see it coming. You’ve got a stock that’s gapping up. It’s near a breakout on the daily chart. So you stalk it and wait for it to break out. While you’re stalking, you can make a careful trading plan

OTC What I’m Saying?

There’s a reason why so many traders love OTCs. Their sketchiness and volatility can be scary, but that can also lead to crazy price moves. 

These fast movements make it extra important to approach trades with a plan in place. 

If you understand these three standard OTC strategies, you’ve got three different approaches to use depending on your trading style and the circumstances of the stock in question. 

Knowledge is power! The more potential strategies you have on hand, the more nimble you can be during the fast-paced trading day. 

Want to keep learning? If you’re ready to level up your trading education, consider joining my mentorship program, the SteadyTrade Team. Together, we keep improving a little bit every day…

Have you traded OTCs? What’s your favorite strategy? Leave a comment below … I love hearing how traders approach the market.