My cunning stock market plan... need info...read or die in squallor

[angry.bob]

So here’s the thing… I know dick-all nothing about stocks in general but I want to try something out and figured I get advice first.

I’ve been watching this one stock for almost a year now and almost everyday it follows the same pattern: Starts the day trading at .05-.06 goes up at least a full .01 or more by midmorning, and then drops down to it’s starting price by noon. Then it repeats the same pattern after lunch. So here’s my question… What’s to stop me from buying like 25,000 shares in the morning, selling them when they go up a penny, buying them when they go down, and then selling them again when they go up in the afternoon? I’m not planning on quitting my job or anything, but it would be nice to make an extra $500 a day for logging into etrade four times a day. Am I missing some regulation or something, or is it really that fast and easy to dupe money IRL? I realize day trading penny stocks is probably a joke in trading industry, not to mention risky, but I’ve been watching this one for a year and it’s had a solid pattern the whole time. I also don’t plan on dumping more and more money into this one stock, I’m going to put all the extra money into other stuff so that if something happens to this one for whatever reason the most I can loose is about $1000. Volume averages 500,000 a day so I’m not too worried about getting stuck when I go to sell the 25,000 shares.

I’ve googled all sorts of stock phrases and just gotten junk results so I figured I’d ask here. Any info on tricky crap a stockn00b might have missed.

[WayAbvPar]

What is the volume of the shares traded every day? Will your 25k purchase affect the price?

[angry.bob]

The volume so far today is 290,000. Is the average volume not the average volime traded daily? How my purchase will affect the price, I'm not sure. If I buy that should help drive the price up, which I want for when I sell it a few hours later, and selling it should help drive it down - which I also want for when I buy more a few hours after that.

[Mr_PeaCH]

I know dick-all as well but here are my opening thoughts.

Are you 100% sure that the prices you're seeing are full penny prices and not just some random fluctuations involving round offs?  (.05 then .06 or maybe in reality it's only moving .054999 to .0550001 and so on.)

I'm just guessing but isn't day-trading is like the most risky of all stock market endeavors.  And I wouldn't imagine even day traders touch the penny stocks.  That's the stuff of boilerroom scammers.

[shiznitz]

Be careful you are not just seeing the stock bounce between the bid and ask price. Sellers pay the bid. Buyers pay the ask. You will in all likelihood lose money buying at the ask and selling at the bid if the spread is .01 or more. Also, trying to buy/sell 10% of the average volume without moving the price would be a feat. You would in effect be trading 20% of the volume.

[Sauced]

Motley Fool still has good advice, even if they've gone a bit commercial.  Just an email addy to sign up.  In general, penny stocks are a bad idea, day trading is a bad idea, and combining penny stocks and day trading is an awful idea.  That $250 will be gone so fast... honestly, I would take the energy that you've spent on watching this stock for a year and watch a Fortune 500 company for a year instead, and buy 5 shares of something you like.  I've seen people try to do this, and watching them stare at the e-trade ticker like crack heads is just embarrassing. 

Of course, as you can probably tell, I'm more inclined to think long term security over risky short term gains, so if that's not your style I'm the wrong person to ask.

[UD_Delt]

My first piece of advice would be to hop on a level 2 streamer. This will show you active buys and sells happening in real time. Make sure the shares are available when you want to buy and also there are buyers around when you want to sell otherwise the lag between when you want to sell and the stock price could ruin your entire plan.

Second, run the full numbers. Don't forget to count per-trade fees and taxes against your expected profit.

Third, what your talking about is a very basic level of chart reading. Some people swear by using charts as predictors of stock movement. Others, myself include, see it as being about the same as astrology. Sure, you might be right some of the time but so is a coin-flip. I think it's better to spend the time researching a companies fundamentals and then investing for the long term (or until those fundamentals change).

[Gutboy Barrelhouse]

Know that the trades in a "penny-stock" are not required to be reported as accurate, timely and the prices quoted in most cases are not correct. Also note that you can have your order to sell at a price and nobody is required to buy your shares, it is common to see trades happen above/below your price and your shares sit unsold.

[shiznitz]

First time investors tend to get attracted to penny stocks because one can buy them in seemingly large denominations. Buying penny stocks is not the way to learn about investing. Intelligent investing takes work. You have to grind (!) through financials and news reports. The best way to start is pick a company whose products you know and like. Then see if the company is selling that product everywhere it should be sold. If you see a new restaurant chain open in your area, try it out. If it is good, find out who owns it.

Internet trading makes it much cheaper to buy 10 or 20 shares of a good company than ever. Take advantage of that and stay away from penny stocks. The bottom line, though, is that if you are not willing to spend 5-10 hours a week doing some work on investing, don't bother. Just buy a mutual fund with a good 5 and 10 year record.

[UD_Delt]

The best way to start is pick a company whose products you know and like. Then see if the company is selling that product everywhere it should be sold. If you see a new restaurant chain open in your area, try it out. If it is good, find out who owns it.

Exactly how I got into Brown Forman (BF.B). A product I like and they also pay a nice dividend which is something else I usually look for as it is usually a sign of stability. The product of BF would be Jack Daniels, SoCo, and Finlandia among others. The bonus is that people always drink. They drink during rough economies (just at home) and they drink during booming economies. Either way liquor companies usually tend to have a nice slow steady climb upward along with paying out a dividend.

Diageo and Fortune Brands would be two other to check out. Fortune however is more of a conglomerate whereas BF makes a vast majority of it's money from liquor.

[Viin]

And people always eat. Try Chipotle.

Personally, almost all of my stock is through managed funds like Dodge and Cox, Baron Asset Fund, etc - mostly through my 401k.
My bank also offers blended stock portfolios which allow you to buy small portions of shares across a broad range of companies (such as real estate, fortune 100, nasdaq, etc). I plan on setting up a couple of those to throw extra money into every month; something outside the 401k through my employer.

[Telemediocrity]

Caveat:  I do know something about how this usually ends up, though I don't have a specific "here's why you're wrong" message.  My father does statistical analysis of the stock market for a living.

That said: Run away now, or at the very least try your plan with very small sums of money and do not increase the sum you put in significantly over time.

As a general rule, consistent profits over time are made based on asymmetrical information.  In my father's case, for instance, he develops his own predictive models for his private use.

If you have no asymmetrical information about a given company, odds are you shouldn't be investing in them.

Day-trading and penny-stock trading are also both considered giant red flags for if something is a good idea.  Neither tend to be consistent money-winners over time.

To entice investors who don't really know what they're doing, brokerages will often cite the stock market's average returns - but that's not the average returns gained by the individual investor.  The individual investor's average returns are really about the same as a T-bill, in other words less than the market.

Why?

Investing is much like poker. Some people make money consistently at it because they seriously study the game (information asymmetries), but they usually don't make money the ways you might think.  The media, companies who stand to profit, and society as a whole presents an inaccurate and skewed picture of what poker playing / investing is actually like.  Everyone has a story of a friend who's made it big without knowing a whole lot.  The only real difference is that people convince themselves that the stock market is somehow "reputable" and "responsible".  Well, of course that's the meme, because that's how you get people who have no business in investing to nonetheless think that the stock market "is for them".

Bottom line:  You're coming to us and saying "Hey guys, I don't know much about playing poker, but I'm thinking of playing poker for money."  Put as much money into this gamble as you would into such a poker game.

Your real money should be diversified in places like mutual funds, IRAs, 401ks, and long-term CD's (during periods of high interest).

The stock market is watched to a T by people who are deadly serious about making money.  Your golden rule should be, "Anything I see, they've already seen".  The absolute worst mistake you can make as a novice investor is to kid yourself into thinking you're clever.  The second worst mistake is to kid yourself into thinking you're not a novice.

[Abagadro]

Is this OTC or pink sheet?  If so, be aware you are likely trading on a less regulated and potentially volatile board.  You could end up being tagged as the sucker on a pump and dump very easily.  My usual thought process on these things was that if it was that easy to make 500 bucks a day someone else would be doing it before I ever got there.  "Rolling" stocks that have a pattern of ups and downs is a viable strategy, but you should look for stocks in a legit trading market that fluctuates over a longer time period.  You can find decent companies that have a very well defined range that goes up and down over the course of a month or two. Not a goldmine but a decent market opportunity.

[Train Wreck]

If you want to practice with Monopoly money first, there's Virtual Stock Exchange.

[Telemediocrity]

If you want to practice with Monopoly money first, there's Virtual Stock Exchange.

Downside there when dealing with penny stocks - can it show how your investment will impact the overall price?

[Train Wreck]

I doubt it.  The prices are based on the real market, with about a 5-10 minute delay.

[shiznitz]

If you want to practice with Monopoly money first, there's Virtual Stock Exchange.

Speaking of that, should we start a F13 stock picking contest? That site isn't great but it is free and I am familiar with it. I could set up a contest to start in the next few weeks.

[Viin]

That sounds like fun, but those of us who are long term investors might take 10-20 years to come out on top. 

[schild]

Could be interesting.

[Jacob0883]

A little secret that seems to be working for me about 70% of the time is mad money with Jim Cramer.  Some nights he will talk about a stock and just because he does the price soars the next day.  The secret to it is to wait until about noon the next day when the slight adjustment from him talking about drops a buck or two and then buy.  DO NOT BUY THAT NIGHT OR IN THE MORNING, YOU WILL BE SCREWED BY THE RICH PEOPLE WHO CAN TRADE AFTER HOURS.  It usually bounces back up a little bit later in the day and you can make some money off a short sell.  Of course the tax benefit is gone if you play short sells, but oh well. 

Downside of the market, I just lost $1400 on NMTI because their little experiment with headaches didn't work :(.

[Yegolev]

I do my stuff through my 401k's funds since I just don't have time for market analysis.  I'll let the pros do what they are trained to do.  That said, I wish I'd put more into Asian markets a few years ago.  Still time for that, in my opinion.

[Telemediocrity]

I do my stuff through my 401k's funds since I just don't have time for market analysis.  I'll let the pros do what they are trained to do.  That said, I wish I'd put more into Asian markets a few years ago.  Still time for that, in my opinion.

As someone who watches Asian markets to some extent, because my focus is East Asian security arrangements, my word of advice:  Don't.  You're right to put your money in a 401k, and it should stay that way; there will always be 'hindsight' moments where you look back and realize that if you could have bought at a certain time and make fat cash money.

But there's a confirmation bias there:  In hindsight, it all appears so clear what you would have done to make the money, but it ignores the alternate, less favorable realities that could have happened but simply didn't.

Also, the focus on 'Asian markets' - in reality, world markets are interlinked in complex ways that can have a major impact on your portfolio.  Who would have predicted in the late 90's that rampant instability in the Thai Baht would crash the Russian economy?

"There's still time for that, in my opinion"?  I don't mean to be impolite, but where money's concerned I feel it's worth being direct - what founds that opinion?  Money is usually made and lost on asymmetries of information.  Hence the golden rule of the stock market: "Once your neighbor and your busboy both have hot stock tips they want to tell you about, it's time to get out of the market."  By the time people on internet message boards are telling me 'there's still time'...  If there's something more substantive behind this impulse on your part, please do correct me.

These asymmetries have ways of correcting themselves as the market becomes more competitive.  Ten years ago, people didn't really delve into the business of the companies they invested in.  Now, serious investors are up to their eyeballs in trade and technical journals and all sorts of arcana looking for anything that will give them an edge in a competitive market.

If you took yourself up on impulses like "I wish I'd put more into ____ a few years ago" with any regularity, you'll probably have enough losses from opportunities that didn't pan out to offset your few big gains.  Of course, as human beings, we're systemically (and somewhat irrationally) predisposed toward pursuing those few 'big hauls' at the expense of slow and steady - which is why we have to indoctrinate children from when they're young with stories like 'The tortoise and the hare' that run counter to our biology, such that we might stand a greater chance of success in society and pass on our DNA.

Again, the analogies between poker and the stock market are apt.  However easy some calls may look from the outside, the pros are playing at a whole different level.

Which is why, in my adult life, I don't think I'll ever develop a stock portfolio - at least nothing that relies on any special insight from myself.  It's not to my comparative advantage.  I'll either go straight mutual funds and 401k's, or perhaps just pay my father a nominal fee to manage my investments.  (He's got the time to delve because he's a househusband).

[UD_Delt]

Buy EA and hold for 2 years. 2 years should be enough time to see a decent installed base of the next generation of consoles. Sell, wait until 6 months before the next console transition and buy it again and hold for 2 years.

Since we all enjoy predictions:

Current price: 54
End of 2006: 70
End of 2007: 95 (pre-split as I expect the will annouce a split again once it reaches around 90)


Hate them all you want they are still a solid investment.

[Telemediocrity]

Buy EA and hold for 2 years. 2 years should be enough time to see a decent installed base of the next generation of consoles. Sell, wait until 6 months before the next console transition and buy it again and hold for 2 years.

Since we all enjoy predictions:

Current price: 54
End of 2006: 70
End of 2007: 95 (pre-split as I expect the will annouce a split again once it reaches around 90)


Hate them all you want they are still a solid investment.

Question:  If that's so certain, why would it not already be factored into the price?

Does the term "Nifty Fifty" ring a bell?

[Yegolev]

words

This is why I let other people manage my money.  I don't have time for that shit.  I still need to finish playing Shadowhearts and the sequel, then Rebelstar, and I still haven't finished DQVIII, then there are all of the Nippon Ichi games, and I am going to have to make room for Twilight Princess in a few months, and then there's Vagrant Story left undone, and I really want to finish Ultima 7 one day... Oblivion is in the way of all that.  I think I am supposed to do some stuff with my family too.

I did think, broadly speaking, that Asia was a good idea when it ostensibly was, but that was mostly me assuming there would be some sort of turnaround rather than real analysis.  I know my limitations; this is why the closest I got was to allocate 401k assets to one of the midgrade Asian-ish funds.  My reasoning now is that a lot of companies are investing in China.  My own corporation expects huge growth in China over the next few years, for example.  Still not going to do anything other than funds in the 401k, though, unless I get a wild hair up my ass and decide to really invest.  In that case, I will hand a lump to my financial advisor and give him a vague outline of what I want.  Or buy lottery tickets.  That might work.

[shiznitz]

Buy EA and hold for 2 years. 2 years should be enough time to see a decent installed base of the next generation of consoles. Sell, wait until 6 months before the next console transition and buy it again and hold for 2 years.

Since we all enjoy predictions:

Current price: 54
End of 2006: 70
End of 2007: 95 (pre-split as I expect the will annouce a split again once it reaches around 90)
want they are still a solid investment.

It is a reasonable bet.

To answer Telemediocre about "If that's so certain, why would it not already be factored into the price?", it isn't certain. The stock market never is.

[Telemediocrity]

It is a reasonable bet.

To answer Telemediocre about "If that's so certain, why would it not already be factored into the price?", it isn't certain. The stock market never is.

You're missing the point.  However certain it is or isn't, unless you know something everyone else doesn't about EA's finances and prospects, that potential is already factored into the price.  Your money is made when your analysis of a company's future prospects differs significantly from the general analysis, by whit of having better information.

[Gutboy Barrelhouse]

You will never have better information than the analysts who watch a stock/sector. If you do you......... well thats called insider trading and is bad for your freedom and bank account.

[Shannow]

Having money in Asia, or more ideally international stocks is just one more way to diversify your portfolio. It should be in your portfolio, however it also shouldn't be ALL of your portfolio.

The one thing that people should think about when investing....do you go buy an item at Target when its on sale or at its most expensive price ever? Unfortunately when it comes to investing a lot of ppl choose the latter.

And whatever you do dont watch prices daily. Hard habit to break though, I do it and I'm in the business. :P~

[Telemediocrity]

You will never have better information than the analysts who watch a stock/sector. If you do you......... well thats called insider trading and is bad for your freedom and bank account.

Sometimes you will, if you devote as much time as they do and make it essentially a full-time job for yourself.  Significant experience in hard math and/or statistics helps, too.

But on the whole, I'm a firm believer that probably 90% of investors manage their assets far more closely than they should - they chock up wins to some sort of skill on their part, losses to bad luck.  In reality, way more people should be just sticking their money in managed, appropriately diversified funds that have fair and stable rates of exchange over the long-term.

Probably 90% of the investors currently in the market (note: that does not correspond to 90% of the market's volume) would be wise to never look at a stock ticker again.

The only reason they do in the first place is because our society has irrationally convinced people that the stock market is a good and respectable endeavor and that it's what Responsible, Successful People Do.

[dusematic]

So here’s the thing… I know dick-all nothing about stocks in general but I want to try something out and figured I get advice first.

I’ve been watching this one stock for almost a year now and almost everyday it follows the same pattern: Starts the day trading at .05-.06 goes up at least a full .01 or more by midmorning, and then drops down to it’s starting price by noon. Then it repeats the same pattern after lunch. So here’s my question… What’s to stop me from buying like 25,000 shares in the morning, selling them when they go up a penny, buying them when they go down, and then selling them again when they go up in the afternoon? I’m not planning on quitting my job or anything, but it would be nice to make an extra $500 a day for logging into etrade four times a day. Am I missing some regulation or something, or is it really that fast and easy to dupe money IRL? I realize day trading penny stocks is probably a joke in trading industry, not to mention risky, but I’ve been watching this one for a year and it’s had a solid pattern the whole time. I also don’t plan on dumping more and more money into this one stock, I’m going to put all the extra money into other stuff so that if something happens to this one for whatever reason the most I can loose is about $1000. Volume averages 500,000 a day so I’m not too worried about getting stuck when I go to sell the 25,000 shares.

I’ve googled all sorts of stock phrases and just gotten junk results so I figured I’d ask here. Any info on tricky crap a stockn00b might have missed.

This is one of the dumbest things I've heard in quite some time.  More please!

[Lt.Dan]

So here’s the thing… I know dick-all nothing about stocks in general but I want to try something out and figured I get advice first.

I’ve been watching this one stock for almost a year now and almost everyday it follows the same pattern: Starts the day trading at .05-.06 goes up at least a full .01 or more by midmorning, and then drops down to it’s starting price by noon. Then it repeats the same pattern after lunch. So here’s my question… What’s to stop me from buying like 25,000 shares in the morning, selling them when they go up a penny, buying them when they go down, and then selling them again when they go up in the afternoon? I’m not planning on quitting my job or anything, but it would be nice to make an extra $500 a day for logging into etrade four times a day. Am I missing some regulation or something, or is it really that fast and easy to dupe money IRL? I realize day trading penny stocks is probably a joke in trading industry, not to mention risky, but I’ve been watching this one for a year and it’s had a solid pattern the whole time. I also don’t plan on dumping more and more money into this one stock, I’m going to put all the extra money into other stuff so that if something happens to this one for whatever reason the most I can loose is about $1000. Volume averages 500,000 a day so I’m not too worried about getting stuck when I go to sell the 25,000 shares.

I’ve googled all sorts of stock phrases and just gotten junk results so I figured I’d ask here. Any info on tricky crap a stockn00b might have missed.

1.  Trading costs would eat up your profits.  Those Schwab ads for $10 trades?  Good if you're trading $100k a month.  You'd probably pay at least $25 per trade = $50 round trip. 

2.  Why not drop more money in?  Liquidity.  Once you need to trade 10% or more of a daily volume and you want to sell it becomes harder.

3.  Orders.  You should look at the bid and ask orders - ie what people are offering to buy at and sell for.  Not sure how you can do this for free but there may be a way.  Would give you an indication of the number of participants (small number of large trades not so good since no interest in the stock).  Would also tell you where the money is - if majority of trades are an offer to sell then likely that the stock is illiquid and you'd struggle getting your penny turn-around.

4. Fundamentals.  Look into the company a little bit.  Sometimes penny stock companies are trading that cheap because they are on the edge of folding.  Their share price is basically an option on their recovery.  Last thing you want to do is be trading when the thing does fold.  *Cough* Phantom *Cough*

5. Sketchy stuff.  Stock only going up on small volumes.  Maybe some unscrupulous firm is making a market in the stock just to attract day-trader trade business and unload their house position.  Pretty low chance of this level of fraud but you'd want to know what firms are active in the stock.  Significant holders is public information, although the filing does escape me.

It's possible to make money trading penny stocks but it's something you need to really get involved with.

[Abagadro]

Significant holders is public information, although the filing does escape me.

10-Q or 10-K if memory serves.

[Big Gulp]

I do my stuff through my 401k's funds since I just don't have time for market analysis.  I'll let the pros do what they are trained to do.  That said, I wish I'd put more into Asian markets a few years ago.  Still time for that, in my opinion.

Exactly.  I put my spare money into Vanguard indexed funds.

The way I look at it is like this; even the people who devote their lives to studying the markets only beat the damned thing 50% of the time.  I'd be deluded to somehow think I've got the inside track on people who do this professionally and still sometimes take a bath.  By putting my money into index funds I'm going to do as well as the overall market does.  Market goes up, I make money.  Market goes down, I lose money.  In the long run I'm betting that the market will go up, as it historically always does.  It's like golf.  Yeah, I'm only playing at par, but there are golfers everywhere who'd give their left nut to consistently hit par.

The nice thing about the Vanguard fund is that you can also specify when you want your holdings to start getting filtered into safer stuff like IRA's.  That way you probably won't be hosed by a sudden market downturn right when you're ready to retire.

[Abagadro]

I too like Vanguard. I have my profit share rollover in one of their "Target Retirement" IRA funds.  It's a balanced fund that gets more conservative (shifting percentages from stocks to bonds, etc.) as you get closer to your projected retirement date.  Low fees too.