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dr0832
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Shorting penny stocks like these can also be profitable since 99.999999999999% of the time these always crash back down after they are pumped. I can't say 100% because there was a penny stocks VRMLQ, (which is now VRML and now trades on the Nasdaq, not the OTCBB.) This stock went from like $.20 to $40.00. This is the only stock that I ever saw that did this and it was a pharmaceutical stock that got FDA approval. Almost all of these stocks fail FDA approval.
The problem for most people with a shorting strategy is that you need to have at least 4 online brokers at specific companies that allow shorting stocks under $5.00 and these companies have a minimum deposit amount. The deposit is about $67,500 in total between all of them which almost nobody that starts out trading has. You would actually need about $110,000 if you wanted to be able to day trade with all these brokers which is a lot for the average person! If you only have one broker you will miss out on many of trades and as you have seen I do not trade a lot. I wait for the near perfect opportunities. This is the same as when you short these stocks. There are several trades per month and you must capitalize on all of them because you will make money most of the time.
There is a short overview of the shorting strategy in the guide, but its predominantly about how to buy since most people can pull together enough money to open one account, but not four.
The other disadvantage to shorting is that when you short sell you have to borrow shares and this means you trade on margin. Since stocks like this can rise longer than you think you an get margin calls and the broker will liquidate your position if you don't increase the equity in your account. This is called a short squeeze, or being squeezed and it can be scary since sometimes these stocks will squeeze $.50 or $1.00+ in a matter of minutes and if you have 10,000 or 50,000 shares this is serious money that you can lose. It works both ways because as you saw with PWEI they can and will drop 50-60% in a short period time and if you are long a stock you will get burned, but with the strategy that I use, I get out long before the dumps occur giving up some of the upside to protect me on the downside. For this reason I short some of these from time to time when the shares are available and the trading setup is perfect, but I don't use this strategy often because of all the negative aspects.
The problem for most people with a shorting strategy is that you need to have at least 4 online brokers at specific companies that allow shorting stocks under $5.00 and these companies have a minimum deposit amount. The deposit is about $67,500 in total between all of them which almost nobody that starts out trading has. You would actually need about $110,000 if you wanted to be able to day trade with all these brokers which is a lot for the average person! If you only have one broker you will miss out on many of trades and as you have seen I do not trade a lot. I wait for the near perfect opportunities. This is the same as when you short these stocks. There are several trades per month and you must capitalize on all of them because you will make money most of the time.
There is a short overview of the shorting strategy in the guide, but its predominantly about how to buy since most people can pull together enough money to open one account, but not four.
The other disadvantage to shorting is that when you short sell you have to borrow shares and this means you trade on margin. Since stocks like this can rise longer than you think you an get margin calls and the broker will liquidate your position if you don't increase the equity in your account. This is called a short squeeze, or being squeezed and it can be scary since sometimes these stocks will squeeze $.50 or $1.00+ in a matter of minutes and if you have 10,000 or 50,000 shares this is serious money that you can lose. It works both ways because as you saw with PWEI they can and will drop 50-60% in a short period time and if you are long a stock you will get burned, but with the strategy that I use, I get out long before the dumps occur giving up some of the upside to protect me on the downside. For this reason I short some of these from time to time when the shares are available and the trading setup is perfect, but I don't use this strategy often because of all the negative aspects.
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