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Intro to Penny Stocks (The TRUTH behind Penny Stock Investing ) - YouTube
Channel: Humbled Trader
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What are penny stocks and why are so many
investors and traders new to the stock market
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drawn to them?
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In this video, Iâll be breaking down what
penny stocks are for beginners, the truth
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behind these companies and what i believe
to be the smarter way to profit from these
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penny stocks as a small time day trader and
investor.
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If that sounds like an interesting topic to
you, make sure to subscribe, ring that notification
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bell and drop me a like for more free penny
stock trading videos on this channel.
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Letâs get started.
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We all know that investing in shares of a
stock means you are owning small percentage
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stakes of established companies like Apple,
which has a market cap of 900 billion.
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Market cap refers to the total dollar value
of a companyâs outstanding shares.
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And itâs used by investors to determine
a companyâs size.
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Penny stocks, are companies with a much smaller
market cap than our example Apple.
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Generally speaking, penny stocks are companies
with a market cap less than $300 million (micro
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caps), some even less than $50M (nano cap).
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Definitions vary but the Securities exchange
commission classifies penny stocks as companies
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traded under $5.
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And many of them, if maintained above $1,
are still traded on the Nasdaq or the NYSE,
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the regulated stock exchanges.
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However, the true penny stocks, are companies
traded below $1.
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These are what we call pink sheet stocks,
which are the companies Jordan Belfort pumped
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in the movie, the wolf of wall street.
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And they are traded on OTCBB, Over the counter
bulletin boards.
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And I will be comparing these two kinds of
penny stocks in just a second.
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So why are these penny stocks considered risky?
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The first and the biggest reason is the lack
of information available to the public.
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This really only applies to the OTC penny
stocks traded under $1.
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Companies listed on the pink sheet are not
regulated by the SEC and are not required
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to make financial documents available to their
investors.
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So without these documentations such as the
10K, investors cannot find out their cash
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flow, operating expenses and whether or not
these companies are actually generating revenue.
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As for the small cap penny stocks trading
above $1 and are listed on the Nasdaq and
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NYSE, these companies are required by the
SEC to file their financial statements, register
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for offerings and inform investors of important
updates.
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So in that sense, the penny stocks above $1
are a little less risky than the true penny
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stocks on OTCBB.
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However, they are still sketchy and easily
manipulated through misinformation and pump
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and dumps.
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Which is the second reason penny stocks of
all prices are considered risky.
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Many of these penny stock companies release
news and pay promoters to pump their share
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prices up with sensational headlines, like
iâve talked about in many of my previous
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penny stock videos.
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These penny stock news releases often include
keywords in the titles such as âagreementsâ,
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âcontractsâ, âadvancementâ, âstrategic
placementâ etc.
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These are what I call sensational key words.
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Because theses sketchy penny stock companies
take advantage of the fact that most investors
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and traders in the market are lazy, and they
do not read past the headlines.
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If youâve actually dive into reading and
analyzing the entire PR articles like i have
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in my past videos, youâll see that most
of the time, the content is really all fluff,
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and no real promise in the companyâs potential
earnings.
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And of course the purpose of these PR pump
is to drive shares prices up hundreds of percent
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as we have seen in past examples like $OPTT,
$BPTH, $YRIV and $ABIO.
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As the shares hiked up, that's when insiders
of these penny stock companies start to sell
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and dump millions of their own shares on unsuspecting
investors.
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Or sometimes these penny stock companies will
take advantage of the pumped up share prices
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to issue offerings and raise more money for
their companies.
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Weâve seen examples of these pump and dumps
with OTC stocks.
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These penny stock companies recruit third
party online promoters to send out promo emails
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and publish false articles.
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While many will argue that the NASDAQ penny
stocks are regulated and less manipulated
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than the OTC penny stocks, the truth is these
sensational press releases are whatâs considered
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âlegalâ pump and dumps.
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And we are now treading in the grey area now.
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It is indeed legal, in the eyes of the SEC,
to release exciting news about the company
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to investors.
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There has been some extreme NASDAQ penny stock
manipulation cases like $LFIN and $HUNT, both
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of these companies released misleading news
to drive their share prices up from under
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$10 to around $100 basically a 1000% ROI scheme.
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Both of these companies were investigated
by the SEC and delisted from the NASDAQ stock
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exchange to OTCBB.
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But letâs be real here, these two companies
being delisted only represent less than 1%
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of all the penny stock pump and dump schemes
in the market.
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Unless itâs really blatant insider trading
or manipulation like $LFIN and $HUNT stock,
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these PR pump and dumps from small cap penny
stock companies are really just everyday activities
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in the stock market.
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So i just want to raise awareness for new
traders and investors through this educational
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video.
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Penny stocks are inherently risky investments.
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Itâs safer to always be skeptical of penny
stock promotions, PR releases, and penny stock
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chat room recommendations.
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Always do your own due diligence in the company.
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While I do think some penny stocks can provide
great profit opportunities for day trading
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and swing trading, I would AVOID investing
in penny stocks all together unless you have
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real inside information about the company.
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Two very common misconceptions about penny
stock investing is that many of todayâs
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big companies like apple and amazon were once
penny stocks themselves, and that if an investor
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can buy into the investment at twenty cents
a share today, then he or she can make a fast
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100% if the stock runs to forty cents tomorrow.
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Both of these misconceptions are not 100%
true at all.
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We must remember the single purpose why private
companies choose to go public.
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Companies go public and sell their stock shares
to investors in order to raise money, to fund
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their research and potentially develop products
to sell.
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Stocks are not listed to make investors money,
thatâs not the priority anyways, theyâre
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there to move capital from your pockets to
the companies bank accounts.
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And if the companies are truly profitable
and legit, then their stocks will rise in
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prices and make investors money.
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That is only true for profitable companies
with real products like apple.
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The reality is most penny stocks are actually
losing money and do not have real products
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at all.
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Instead, they just keep on selling their shares
to investors and raise more cash to operate
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and pay their board members until they one
day go bankrupt.
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In those unfortunate cases the penny stock
investors lose 100% of their investments and
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the insiders walk away clean with their salaries
and bonuses, paid by the investors of course.
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While it is true the price fluctuations of
some penny stocks from twenty cents today
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to forty cents tomorrow could potentially
make some investors 100% ROI.
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What most people fail to see is the downside
as well.
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The price of the penny stock could just as
easily drop to five cents tomorrow, in which
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case, the investors lose 75% of their money
in just two days.
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And very often when these penny stocks get
delisted from the NASDAQ exchange to OTC.
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and their share prices just kept on dropping
and dropping due to offerings, dilutions etc.
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and itâs not uncommon to see investors lose
basically everything in penny stocks.
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Of course, once a while there are penny stock
companies on the OTC that have worked very
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hard and showed impressive growth and finally
met the requirements to make their stocks
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available on the Nasdaq or the NYSE.
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A perfect example of that is a marijuana stock
called Aurora Cannabis, $ACB.
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Their stock shares were listed on the OTC
pink sheets as $ACBFF until october of 2018.
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However, the chances of most penny stocks
growing their business to be like Aurora Cannabis
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is extremely low.
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So instead of investing your hard earned money
into penny stocks, I think the wiser long
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term decisions would be to invest in established
companies such as apple, facebook and disney.
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Sure, you may not be able to own as many shares
as if you were to buy penny stocks trading
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at $1, but the long term percentage growth
on established companies is undeniable.
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And these investments are much safer as well.
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There is definitely a lot of money to be made
in penny stock day trading and swing trading.
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That means you would just be buying and selling
penny stocks intraday or within a short few
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days instead of over the course of months
years.
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Day trading dng swing trading strategies are
what I focus on a lot on this youtube channel.
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Investing or trading any securities involves
risk.
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Before throwing your money into just any penny
stocks, make sure to do your own research
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and establish your own risk reward profile.
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Always be skeptical of pr releases and do
not follow othersâ alerts.
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This video is not a financial advise to buy
or sell any stocks, but to inform you about
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the potential risk involved with penny stocks
as well as the upside if you learn to day
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trade or swing trade them correctly.
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If you are interested in more detailed day
trading and swing trading strategies, feel
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free to check out more videos listed in the
description below.
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If youâve found any value or entertainment
out of this video please drop me a like and
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subscribe for more free content in the future.
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Feel free to comment down below any questions
you may have as well.
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This is the humbled trader.
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Thank you guys for watching and i will see
you next time!
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