It is easy to caution people to keep their emotions out of their trading activity but this is much easier said than done. After all, human beings are highly subjective so it is probably allow for your emotions into account when making your trading decisions. For instance, you may intuitively dislike a particular company and find it hard to implement your trading strategy for that stock. Other things that you should take into account are the time and effort required to implement a particular strategy and the trading capital that is required to make it work. You should also consider the impact of the loss of your capital and whether you have the patience to see your strategy through. Finally, you should ensure that you do not suffer sleepless nights as the result of a high-risk strategy. After all, penny stocks are high-risk investments.

Because it is often little hard information that is available, you need to use every scrap of information that you can find and then determine your entry and exit points. Unlike conventional stocks, you may not have enough information for the back testing of your strategy to determine your chances of success. Conventional investment-grade stocks can be reviewed at periodic intervals but this is not possible with penny stocks where developments can often be sudden and dramatic.

As long as you make sure you diversify your investment and don’t put too many eggs in one single basket, you can probably live with penny stock investing risk. You are going to have to work hard to gather information on potential investments but, if you do not do your homework, there’s a good chance that you will end up losing money. As experts never tire of saying, the line between gambling and speculation is the degree to which you can control your risk.

One of the most important parameters of investment strategy is the time frame in which you are going to trade. It is axiomatic that, the shorter the time frame, the better your control of risk. On the other hand, if you lengthen the time frame, it can be less stressful while reducing transaction costs. Frequent trading can be profitable but requires a great deal of intensity and focus. Because you are trying to exploit narrow windows of opportunity in penny stocks, you have to stay right on top of market developments all the time. Realistically, you can succeed with fairly simple penny stock trading strategies so there is no need to complicate things for yourself. In short, there is no substitute for sound common sense.

• Penny stocks are cheap for a good reason that is reflected in their stock price. The reality is that many of these businesses are start-ups avoiding the expenses of an Initial Public Offering or they do not have a business plan or model that is sufficiently attractive to attract other forms of investment. This does not necessarily make one of them a poor investment but realistically with your chances of profiting from your investment are not good. It is possible that you could identify a company that becomes the next Microsoft and provides you with stratospheric returns but you have to live with the fact that these opportunities come far and few between. In fact you would be lucky if you made one such investment in 10 years.
• Where possible, look for shares with reasonable daily volumes of trading. If a share trades 1 million shares in one day and then does not trade for the next month, the average daily volume drops to just over 30,000 shares. This example also illustrates the importance of timing because if you do not catch the one-day and the trading volume happens, you will not have a chance to trade for the next month. You will also want consistent volumes so that you can enter or exit as you choose. Also check whether one small group of traders are accounting for the volume because this means that the price is being manipulated. Without establishing liquidity, you are probably staring a dead investment in the face and will need to take substantial sacrifices in price just to sell your holding.
• Establish if the company could be profitable in the long run. Most start-up businesses tend to lose money in the short run and the key to good management is to establish long-term sustainable profitability. If your potential investment passes this test, you are less likely to lose capital and more likely to earn acceptable returns on your investment.
• Penny stocks tend to be volatile and a 20% movement in price either way is not uncommon. Establish a proper trading plan with stop losses and ensure that you stick with your stop loss to minimize your losses. If the price is moving upwards in your favor, you should consider using a trailing stop loss. In other words, if you buy a one dollar a share in the expectation of seeing the price of $1.20 per share and the price actually reaches $1.30, you can consider moving up your stop loss to $1.20 and protecting your profit.

The best way to spot these promising penny stocks is to identify and develop the criteria that you will use for identification and then use the appropriate tools to complete the process. For instance, the criteria you develop to investigate the approximately 3500 stocks that trade on the OTCBB may look something like this:

-You will want any stocks that are priced as low as possible so that you have the maximum upside if there is upward action on the price. You may therefore want to search for stocks that are priced between $.05 and $2 (some sources say that the average price of a penny stock is in the region of $.10). Shares that are more fully priced may not be suitable candidates for you.

-A certain degree of liquidity is desirable so that you can either buy or sell penny stocks in the quantities that you wish. You may therefore wish to look at stocks where the average daily trading volume is 75,000 shares or greater.

-Use technical analysis to make sure that the stock price is trending upwards. You may wish, for instance, to consider stocks where the nine-day simple moving average is greater than the 18 day simple moving average so that the upward trend is established.

-You do not wish to select companies that are bleeding cash because they could go under at any point in time without warning. You will want to exclude these companies as well as companies that show a negative EPS or a decline in existing earnings.

-Finally you should check out every possible bit of information or news on the companies that you have short listed. Check the charts on the stock prices to ensure that all the indicators are healthy.

A useful tool for investors who are serious about penny stocks is a stock screener. You can obtain both free and paid stock screeners but, either way, the challenge is in finding a screener that gives you the best combination of fundamental and technical analysis. If you cannot find the right combination, go for a screener that delivers on technical analysis and you can then subsequently perform fundamental analysis on the candidates that remain. It is not uncommon for you to find yourself unable to obtain enough data to perform basic analysis.

Within the company there are two distinct sections; the ATG focuses on providing applications for the government, working with aircraft and missile technology. The other arm of the company is the CPG part, which produced all types of bladed equipment from bayonets to cutlery.

The results which they gave out for the first 3 months of the financial year showed a net income of $622,000 and a figure for revenue of almost $8 million. This represents a big increase of almost $500,000 in the income reported last year, despite the revenue only increasing by some $340,000. A successful cost reduction drive is touted as the main reason behind these positive figures.

The stock price over the last year has varied greatly, from $5,50 to well over $11, so it is a very mobile price and the reliance upon government contracts in a very unpredictable field makes it difficult to predict how this will one will go in the future.

Remember that last week the first round of picks earned us a 20% gain using CMLT, PTSH and MIRA. Now we are looking at:

TNRI which closed at .0032 the week it was suggested, is now worth .0015 for a 53% loss.

SOYO which closed at .4 the week it was suggested, is now worth .35 for a 12.5% loss.

RPDM which closed at .0027 the week it was suggested, is now worth .001 for a 63% loss.

This was a beating. But closer to what I expected than the first round of picks that actually had a gain.

How bout the running total? The first week left us with 361.8, 360 of which we invested in the above stocks which gave us an average of -42.8% and a running total of 207.72. Meaning that overall we would have lost close to one third of our initial investment. Still think penny stocks are a dream come true? Let’s keep exploring shall we?

Last weeks picks are now:

ZIPI .019 from .029 for a 34.5% loss.

NXHD .0006 from .0012 for a 50% loss.

MDOR .61 from .7 for a 12.9% loss.

Really? Your stock picks are now down again? A total average of 32.5% and we have a week to go?

I firmly believe that the website in question really does not have a good hot ‘n cheap penny stock picks list and that they are just duping unexperienced investors. I am pretty close to positive you will see the same in the coming weeks.

The new line of stocks selected from their suggestions are:

GRDO for .0015

CENV for .005

PURO for .104

First up we have CMLT.OB: opened at .0004 and ended with a closing price of .001 for a 150% gain. A huge jump like that makes it obvious why it was selected, but let’s keep an eye on their pick moving forward to see if it continues to pay off.

Second we get PTSH which opened at .001 and closed at .0014 for a clear 40% gain.

Third we get MIRA which both opened and closed at .04

Lets keep a close look at these prospects over the next couple days and see if this is a pump and dump scheme or a legitimately researched penny stock picks list.