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How To Trade Penny Mining Stocks
When it comes to trading penny mining stocks, a lot of people think that they are the same as any other equity. Sure they do trade the same but the charactarists of them is quite different. There are many things to be aware of. One of these is whether to day trade the stock or swing trade the stock. THe link below takes you to another page and talks about the differences.
Day Trading vs. Swing Trading
Firstly, because these stocks are just pennies in price a lot of people think that you can make a lot of money. After all a 10 cent stock just has to go to 15 cents and you made 50% on your money. Not bad considering some of these stocks can explode to the upside by the 1000%. But what most fail to be aware of is that a lot of these stocks are very illiquid. Meaning, they don't trade very much. It is easy to find a 10 cent stock but when one looks at the trading range over the past year or so you may be see that it has not traded very often. Or the trading volume is slim. Buying a stock that you can't sell or the spread between the bid and ask is wide is a sure way to loose out.
Secondly, most penny mining stocks are owned by companies that depend on venture capital or private placements to keep them funded. Because they are in the exploration business, they do not have a way to generate any income. They may have mineral property or the rights to certain properties, but as they say in Canada, it could be just moose pasture. Without any good drilling results in the ground or good assays, there is not much to get excited about. Exploration in remote areas of the world is a very costly venture. Litterly millions of dollars can be spent on a maybe or what if. But as history shows so often, when it comes to gold and mining in general, people are aways willing put out the money and make their bet. Precious metals always holds the facination and dreams of easy riches and wealth.
A lot of these companies are kind of like sheep. Meaning they follow one another around. Or so it seems. One company finds a hot spot or new strike and it seems the staking rush is on. In a matter of days all the surrounding properties can be snapped up and staked. You can always see this in the trading activity of the stock with these companies. The one who finds good results, the stock price shoots up. Those who have property around or close by will see some activity in their stock trading to the upside. People have a tendancy to chase to rumours. Some refer this to ambulance chasing.
Where Does One Begin.
Most of these penny mining stocks are owned by small companies. The bulk of them, probably 75% are Canadian. Canada is a world leader in mining. The (TSX) Toronto Stock Exchange and the (TSX:V) Venture Exchange is where a lot of these stocks trade. Vancouver British Columbia use to be the hub for penny mining stocks around the world. The exchange was the (VSE).
There are maybe a few hundred or so penny mining stocks that trade on the ASX Australian Stock Exchange and also there are those that trade on the OTCBB in the US. Also exchanges in Europe and South Africa have small mining companies listed. But an over whelming majority are listed in Canada on the (TSX) and the Venture (TSX: V).
While most online brokers will have a stock screener where you can put in the price, the industry, the trading range etc. there are also other site like the Globe and Mail or the Finacial Post.
Another good place to start your research of these companies is on our sister website Juniorminers.com. This website has over 1500 junior mining companies listed and this list keep growing. Each company has it's stock ticker and exchange plus a link to it's website.
There are many other places on the internet to find which stocks are having a lot of trading activity. Places like Stockhouse will have each day and throughout the day various news blips on the hottest performing junior stock. This will give you an idea of who is doing what and where. Stockwatch has fair coverage of news releases of penny mining stocks. These news releases are there to let the public know of any material changes to the company. It could be anything from drilling results to land aquisition and anything else in between. Kitco has a front page of new releases updated by news feeds plus as an added bonus you get updated real time metals prices and gold prices. These are sites one should have on their favorites list. I would like to caution that on chat rooms and bull boards you have to really do your own due diligence because of those who bash or worse yet, those who have bought really low and start to pump the goods about the stock only to dump it out. This is called a "Pump & Dump".
Knowing When To Buy
Knowing when to buy can be extremely tricky. Because these companies stocks can go for months months or even years with very little movement, timing and entry point is very difficult. What we like to do is wait until the first pop in the stock price has been made. This pop in volume and price will usally get noticed on most stock sites, chat rooms and bull boards. After the first flurry of activity has happened the stock will have a tendancy to fall back as profit taking occurs but the interest is there. Depending on what the press releases may say this will help us judge whether to buy or sit tight for a bit. An example of some dormant stocks that had press releases and got noticed by the public can be seen on our historical charts page. We have circled some interesting entry points if one were to buy the stock.
Knowing When To Sell
Of course we get quite confused as humans do as to "when to sell". The timing to sell can be just as difficult to know as the time to buy. Most stock traders will tell you though that if one is up 30% and it looks iffy, why hold? A lot of these stocks will double and for us that is more than plenty to take our profits and move on. You can always get back into the same stock at a later date if the the news and performance is in your favour. When all you get from a bank is 3%-5% annually, a double in a month or so just isn't hard to take. Be sure to click below to read the difference between day trading and swing trading.
Day Trading vs. Swing Trading
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