PennyStockFanatics.com s Ultimate Guide to Trading Penny Stocks TM

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2 Michael C. Gunn is Proud to Present: PennyStockFanatics.com s Ultimate Guide to Trading Penny Stocks TM Table of Contents Introduction: PennyStockFanatics.com s Ultimate Guide to Trading Penny Stocks TM Ch. 1. Penny Stocks Ch. 2. Strategies for Buying Penny Stocks at the Lowest Price Ch. 3. Don t Chase Penny Stocks Ch. 4. Strategies for Selling Penny Stocks at the Highest Price Ch. 5. The Trading Dogma Ch. 6. Avoiding Trading Blunders Ch. 7. Expectations (Will I Be a Millionaire by Next Year?) Ch. 8. Getting Started (Choosing a Broker) Ch. 9. Disclaimer Ch. 10. Glossary of Common Terms About the Author: Michael C. Gunn is an American financial author and securities investment educator with expertise in choosing and profiting from penny stocks. Michael C. Gunn works with several informational sites focusing on penny stocks and publishes an investment newsletter (PennyStockFanatics.com). Disclaimer: Penny stock trading involves substantial risk, so always research every alert before trading, consult with a licensed professional before trading, only invest what you can afford to lose, and always trade with caution. PennyStockFanatics.com and its staff are NOT licensed investment advisors of any kind, in any jurisdiction. Alerts are not a solicitation or recommendation to buy securities, but merely investment ideas that should NEVER serve as the basis of your trading or investment decisions. PennyStockFanatics.com is for entertainment purposes only. View the risks of investing in penny stocks at

3 INTRODUCTION PennyStockFanatics.com s Ultimate Guide to Trading Penny Stocks TM in penny stocks demonstrating extreme short-term price movements triggered by abrupt speculative corporate developments, breaking news, awareness campaigns, breakout patterns, and reverse mergers. PennyStockFanatics.com, is dedicated to teaching our subscribers the key to consistently capturing tremendous short-term gains trading penny stocks as well as ing two to four of our most lucrative penny stock alerts per month 100% FREE right before the stocks EX- PLODE! PennyStockFanatics.com s Ultimate Guide to Trading Penny Stocks TM is brought to you by Michael C. Gunn and PennyStockFanatics.com, the most highly trusted free penny stock newsletter alert service on the market. This is the perfect guidebook for beginners or even experienced investors, traders, or any individuals seeking fundamental knowledge required to expand their portfolios to include potentially the most highly lucrative investment market in existence. Our rapidly expanding group of thousands of loyal subscribers is constantly receiving additional educational tools and secret trading strategies. The PennyStockFanatics.com team is growing by leaps and bounds, and our penny stock alerts just keep getting better and better! Don't miss out, visit PennyStockFanatics.com and subscribe for free, and reap the rewards by joining the most trusted penny stock alert service in the market today! Just a little bit about our 100% FREE service PennyStockFanatics.com is a rapidly expanding small and micro-cap (penny stock) investing resource that consists of investors ranging from beginner to the highly savvy, stock traders, and thousands of highly active subscribers! We specialize Also, check out Michael C. Gunn s Premium Promoter Alerts Service at PennyStockFanatics.com, where you will learn the BIGGEST SECRET on Wall Street is penny stock super rallies that are frequently the direct result of professional stock promoters! PennyStockFanatics.com has analyzed years of historical performance data from over 1000 stock promoters and compiled an elite list (top 1% based on performance)! We have discovered that ONLY our proprietary elite list of top 1% of 2

4 stock promoters can produce predictable reproducible and highly lucrative gains time and time again. 20 out of 20 of the last stocks promoted from our proprietary top 1% of stock promoters experienced epic gains. Michael C. Gunn s Premium Promoter Alerts Service members will receive our revolutionary stock promotion trading book, the only one of its kind available to the public, and can expect to receive two to three stock alerts from our top 1% of all stock promotions per month in their inbox the moment the promotion campaign begins. This allows our VIP members the opportunity to acquire the absolute lowest possible share price. Visit Michael C. Gunn s Premium Promoter Alerts Service at PennyStockFanatics.com to become a premium member now, and join an exclusive group of stock promotion traders who are literally making thousands to hundreds of thousands of dollars a year! 3

5 CHAPTER 1 Penny Stocks Penny stocks, also known as small or micro-cap stocks, are common shares of small public companies that trade between $4.00 and $ per share. In the case of many penny stocks, low market price inevitably leads to low market capitalization (total shares available multiplied by the current price per share). Consequently, such stocks can be highly volatile and highly subject to experiencing extreme and rapid positive price movements triggered by speculation, breaking news, reverse mergers, corporate developments, and professional awareness campaigns. Penny stocks in the USA are often traded over-the-counter (OTC) on the OTC bulletin board or pink sheets. In the United States, both the SEC and FINRA have specific rules to define and regulate the sale of penny stocks. Penny stocks offer investors several unique benefits, which are absent in big board or large cap stocks such as Google, Apple, or Microsoft. 1. Penny stocks are offered at a low price per share. Penny stocks are sold from $4.00 per share to as low as $ per share. This can be attractive for new investors, because they are given the opportunity to acquire a large volume of shares of stock for a relatively marginal investment. 2. Penny stocks can demonstrate extreme price movements of 25% to over 1000% in a relatively short period of time. For example, a penny stock can commonly rally from a share price of $0.01 to $0.10 (1000%) in a matter of only a few trading days to a few weeks. Google s share price would have to exceed $60, to replicate the same price movement (not possible!). 3. Penny stock rallies are often independent of overall market movements (bear or bullish) and can be resistant to economic slumps or recessions. 4. Some of the biggest and best technology can be invested in before the company s share price explodes. Penny stocks are speculative investments. What attracts investors and traders to penny stocks is that a relatively small investment can potentially yield large gains in a short period of time. However, before jumping into penny stocks, there are several key differences between micro-cap (penny stocks) and large-cap (i.e. Google, Apple) stocks. 4

6 Below are three key differences that every potential investor must understand before trading penny stocks. 1. Lack of Information Available to the Public: Often the key to successful investment strategies involves acquiring enough tangible information to make informed decisions. For some penny stocks, information can sometimes be difficult to locate. Companies listed on the pink sheets are not required to file (but may choose to) with the Securities and Exchange Commission (SEC) and are thus not as publicly scrutinized or regulated as stocks represented on the New York Stock Exchange and the NASDAQ. Despite a lack of SEC filings, you will soon find out that penny stock rallies are often fueled by pure speculation and that these extreme rallies are often not affected by the lack of SEC filings. sell the stock (supply is greater than demand). If there is a low level of liquidity, it may be hard to find a buyer for a particular stock, which may require lowering your share price until it is considered attractive to another buyer. Second, low liquidity levels provide opportunities for some traders to manipulate stock prices. 2. Lack of Minimum Standards: Stocks listed on the pink sheets are not required to fulfill minimum standard requirements to remain on the exchange. Stocks listed on the OTCBB are required to file timely documents with the SEC. Minimum standards act as a safety cushion for some investors and as a benchmark for some companies. 3. Liquidity: When stocks lack liquidity two problems may arise. First, there is the possibility that you won t be able to 5

7 CHAPTER 2 Strategies for Buying Penny Stocks at the Lowest Price takes to place your buy order, be received and processed by your online broker, the current share price may now exceed your initial buy order, thus requiring you to quickly modify your buy order by increasing your order price to reflect the current updated price. Entering your position (or buying stock) correctly can literally be the difference between capturing 25% gains on day 1, or 50 to 100% gains on day 1 of a major stock rally. We recommend attempting to capture gains of 25 to 50% within the first 2 to 5 trading days for each and every penny stock trade. We frequently successfully execute an entry position for a lower price point by setting our initial buy order 10% or more over the current real-time ASK price, as opposed to placing an order that requires one or more order modifications. Also, never place a market order, always specify a specific buy price (limit order). We recommend not placing an all-or-none (AON) order. An AON order will only allow your broker to fill your order if all the shares at your specified price are available. It s more advantageous to acquire at least some shares at your initial specified price rather than zero shares. Buying penny stocks during a super hot active rally will typically require placing your buy order at the ASK price (the realtime lowest price someone is willing to sell the stock for), not the BID price (the highest price someone is willing to buy the stock for). Furthermore, many penny stock active rallies are so popular that in order to secure a position (acquire stock) you may frequently need to place your buy order 10% or more above the current ASK price (this is very common practice for highly active stock rallies when the demand outweighs the supply). During one of these micro-cap mega rallies, in the time it One more tip, make an effort to buy shares in nice rounded numbers. For example, it is easier for your broker to fill a buy order request for 1000 or 1200 or 1500 shares as opposed to 1673 or 1246 or 1872 shares. Your order may be filled faster if you round your share volume to a nice whole number. 6

8 CHAPTER 3 Don t Chase Penny Stocks will immediately experience a reset or pullback, which is a rapid and often brief significant decrease in share price before the stock eventually climbs northward again. Don t chase penny stocks in excess of 50% during the buying frenzy that typically occurs at the opening bell during a superhot penny stock mega rally (the types of stocks that PennyStockFanatics.com will often alert for FREE to all subscribers). Chasing a stock is an attempt to buy a stock that is rapidly rising in price (because at that moment supply is significantly lower than demand) by placing orders at increasingly higher prices. Figure 1 demonstrates AERN experiencing a super-hot rally where demand is greater than supply. Buying demand is typically highest during the first 15 minutes of trading, as you can see by our chase annotations. Notice the sharp pull back or decrease in share price that immediately follows the chase. Waiting for this pull back will offer investors a lower entry point (a better price per share). This pattern is very common and predictable during hot micro-cap stock rallies. During a mega stock rally it is often more advantageous to wait on buying a stock until after the first 15 to 30 minutes of open trading (the opening bell), rather than buying stock that is rapidly rising or that has risen in share price in excess of 50% within the first 15 minutes after the opening bell (beginning of the trading day). More often than not, a stock that experiences an opening bell spike or rapid rise in share price 7

9 Figure 1. 8

10 CHAPTER 4 Strategies for Selling Penny Stocks at the Highest Price There are three keys to exiting a position (selling your stock) for the highest possible price: 2. The first 5 to 10 minutes following the opening bell can be the most advantageous time to exit your position (remember, buying interest is often highest during the first 15 minutes of the trading day). This is especially true if the prior day s end-of-day trading activities suggested a strong buying interest. Furthermore, it is common for companies to release news or PR after hours (after normal trading hours) when more potential investors are home from work and browsing their favorite financial news sites. This will typically provoke strong buying interest in the first 5to 10 minutes following the opening bell. If you have met your goal of obtaining 25to 50% gains, we strongly recommend taking advantage of this opening bell momentum and selling to secure profits! 1. Always exit your position when the stock price is rising. Do not wait for the share price to start decreasing before selling. When the share price is rising, buyers are lined up to buy, which typically allows sellers to sell their shares at the current ASK price rather than the current BID price. If you wait for the share price to start decreasing, you will have to get in line with all the other shareholders who want to exit because of the current decreasing share price. You will likely at best only be able to sell your shares for the BID, or more frequently lower than the current BID price. 3. Finally, make every effort to exit your position within 2 to 5 trading days. The faster you secure profits, the less likely you will find yourself caught in a stock dip, pullback, or downturn. Most penny stock super rallies only last 2 to 5 days; after that a sharp decrease in the share price is often experienced. Figures 2 and 3 demonstrate typical micro-cap stock super rally patterns. As you can see in Figure 2, INAR rallies over 800% within just 3 trading days. Afterwards a sharp decline in share price developed. Figure 3 demonstrates an MDMC rally topping over 200% within 10 days followed by a similar steep decline in share price. 9

11 Remember!!!!! The key to consistently profiting from microcap stock rallies is to buy stock early and sell quickly. At PennyStockFanatics.com we alert our subscribers for FREE the very moment one of these penny stock super rallies begins, allowing our members the opportunity to acquire the lowest possible share price. 10

12 Figure 2. 11

13 Figure 3. 12

14 CHAPTER 5 The Trading Dogma The truth is that many micro-cap companies are in the business of selling common stock to the general public in order to fund their operations. They may claim to be the next Google or claim to have the cure for cancer or claim to have solved the world s energy crisis with magic magnets. It is never a good idea to fall in love with any micro-cap...remember, view them as trading vehicles. These companies want to sell you stock and want you to hold those shares for long term not a good idea. The following provides information on PennyStockFanatics.com s micro-cap trading philosophy and theory. Never trade more than you can afford to lose. Assume any trade can result in a sizeable loss. For all practical purposes, micro-cap (penny stocks) stock rallies should be viewed as short-term price movements (rarely exceeding 10 days), which will eventually and abruptly end. During active penny stock rallies, it should be assumed that most of the PR content released is highly speculative and that these corporate developments, regardless of how sensational they may sound, will not result in a long-term upward price movement. We strongly recommend trading less than 25 to 50% (33% average) of your trading account balance on any one trade. Once again, we tend to view most micro-cap stocks as "trading vehicles," rather than "long-term investments!" We focus on the brief period of time that these stocks experience super rallies. Our usual goal is to capitalize on these rallies and move on. Fundamentals are less relevant during micro-cap stock rallies. Share price responds mostly to speculation (breaking news) 13

15 rather than corporate fundamentals. Thus, poor corporate financials, assets, earnings, sales, products/services, and management may not be as negatively influential relative to large cap stocks. Seek conservative gains of 25to 50% (33% average) per trade. Attempting gains in excess of 25to 50% per trade can result in losses simply due to the high volatility of micro-cap stock rallies. Many micro-cap stocks alerted by PennyStockFanatics.com can experience share price movements in excess of 25% to over 1000% in short periods of time. However, we strongly recommend exiting your position or selling your stock after obtaining 25 to 50% gains rather than holding your position for excessive gains (you never know when the rally will end). stock rallies (remember, penny stocks rally on breaking news or speculation, not on fundamentals or technical analysis). Your chart skills may not serve you as well with penny stocks; reserve these skills primarily for large cap stocks. Remember, in rare cases, the SEC can terminate trading temporarily or even indefinitely at any time, resulting in a 100% loss of your securities (I have never seen this happen), so never obligate more than 25 to 50% of your account balance in one stock trade at any given time. Once again, we strongly recommend trading less than 25 to 50% of your total trading account balance on any one trade or stock alert. Obtaining gains of 25 to 50% can typically be achieved within the first 2 to 5 days during an active stock rally. Therefore, it is better to buy during the early states of a stock rally and sell early, then move on. Avoid using a market buy order with penny stock trading. A market order may get you an entry price that is very different from what you initially expected. So when trading penny stocks always use a limit order. Chart-ology, or the study of momentum indicators and technical analysis, is less relevant when pertaining to micro-cap Don t engage in after-hours trading (most penny stocks do not allow after-hours trading). The stock market operates from 14

16 9:30AM to 4:00PM EST. During the last decade, after-hours trading was introduced to extend the profit-making opportunities even after the regular trading hours. The problem with trading after hours is that the liquidity of the stocks is very thin during these hours. Never trade with money you need to use to pay your bills. Don t trade penny stocks with money you need to live on, just in case you poorly execute a trade. 15

17 CHAPTER 6 Avoiding Trading Blunders! 2. Trading large percentages of your account balance (greater than 25-50%) on any one trade. a. All penny stock traders will execute a trade poorly from time to time. Penny stocks demonstrate extreme inter-day volatility. Therefore, in order to minimize large overall trader account balance setbacks, we recommend only trading up to 25 to 50% of your total account balance on any one trade. What are the most common mistakes made by penny stock traders? 3. Holding your position too long in an attempt to capture excessive gains. 1. Buying a stock based on a random penny stock tip. a. We do not recommend trading a given penny stock purely based on a stock tip from a message board, chat room, forum, friend, or neighbor. One mistake could result in a terminal account balance setback. Leave this work to the experts at PennyStockFanatics.com or your favorite and trusted micro-cap analyst. At PennyStockFanatics.com, we are constantly rolling up our sleeves and going to work to ensure that our subscribers only receive the biggest and best penny stock alerts in the industry! a. Our goal is to capture a 25 to 50% gain per trade. This will typically be accomplished within the first 2 to 5 trading days. Once you have obtained this goal, we strongly recommend exiting your position and securing your profits. 4. Buying into the hype on social media or message boards regarding a penny stock s potential. a. Social media and message boards are notorious for staging stock scams and providing misleading and deceptive information. We take a strong stance that everything found on a 16

18 message board is there for one reason, to make the poster money at the readers expense. We see no advantage in visiting any of the popular stock trading message boards or forums. 5. Chasing an entry point greater than 50% from the stocks prior day closing price. a. If a stock s share price rises 50% or more within minutes after the opening bell, don t assume that the rapid upward price movement will continue its current course indefinitely. There will always be a pullback following a major opening bell rally (see Figure 1). Wait for this pullback to enter your position, or if the stock price has gained several hundred percent within a brief period of time (30 minutes to 1 hour), we recommend avoiding that stock entirely (too much volatility for us)! 17

19 CHAPTER 7 Expectations (Will I Be a Millionaire by Next Year?) 3. For the purpose of these examples, we will assume that our subscribers will be able to make three trades per month (we will alert at least two to four stocks per month). Will you become a millionaire by trading penny stocks? The answer is probably not, but we are confident that you can significantly enhance your annual income if you exercise discipline and follow the basic conservative rules outlined in this guidebook! Lets take some time to discuss some possible expectations by analyzing several examples Here are the rules: 1. My system strongly recommends never trading more than 25 to 50% (33% average) of your total account balance on any one single trade (just in case something goes wrong). Ex. 1: If one of our subscribers funded an online brokerage trading account with $3, and executed three trades per month with 33% of their account balance per trade and secured profits (sold their stock) after obtaining 33% profit per trade and reinvested all profits rather than withdrawing funds from their brokerage account and continued this pattern for 12 months (36 trades), the total account balance would equal: $128, Ex. 2: If one or our subscribers funded an online brokerage trading account with $6, and executed three trades per month with 33% of their account balance per trade and secured profits (sold their stock) after obtaining 33% profit per trade and reinvested all profits rather than withdrawing funds from their brokerage account and continued this pattern for 12 months (36 trades), the total account balance would equal: $258, We also strongly recommend taking profits after reaching gains of 25 to 50% (33% average) on a single trade. Ex. 3: If one of our subscribers funded an online brokerage trading account with $12, and executed three trades 18

20 per month with 33% of their account balance per trade and secured profits (sold their stock) after obtaining 33% profit per trade and reinvested all profits rather than withdrawing funds from their brokerage account and continued this pattern for 12 months (36 trades), the total account balance would equal: $513, Now: Arguments can be made that 36 trades executed based on the above assumptions may not be realistic. However, we are assuming that the investor in the above examples is only obtaining 33% profit per trade (per our recommendations). The vast majority of our stock alerts will afford investors the ability to capture 50% to 500% or more in gains per trade (we still strongly recommend taking profits once 25-50% gains has be obtained). Furthermore, let s just say that the investor s performance after 12 months was only 50% of the total values from examples 1 to 3. 50% of hundreds of thousands of dollars is an absolutely fantastic return on investment! These trades will literally only require roughly 30 minutes total each to execute, and that s only about 18 hours of total time investment over the course of 12 months! 19

21 CHAPTER 8 Getting Started (Choosing a Broker) executed trade, never trade over 25% of your account balance on a single order.) To get started you will need to open an online non-margin brokerage account. A non-margin account allows you to make an unlimited number of day trades within any given time period. A margin account may limit the number of day trades you can execute in a given time period. Also, you typically cannot purchase stocks listed for under $4.00 per share on margin. We recommend a brokerage firm with considerable consumer approval such as Scott Trade, E-trade, or TD Ameritrade. Once your account is funded, become familiar with that broker s trading tools and platform to ensure a quick execution of your trade. Remember, once you exit your position (sell your stock), those particular funds will not be available for trading for three business days (for example, if you sold your stock on a Monday, those funds would not become settled and available for trading until Thursday morning). We recommend initially funding your account with between $2, and $4, (smaller account balances are also acceptable). Remember, we highly advise never trading more than 25% of your entire account balance on any one trade. (In order to minimize account balance setbacks due to a poorly 20

22 CHAPTER 9 Disclaimer All references to we, our, etc. refer to PennyStockFanatics.com. Neither PennyStockFanatics.com nor the owner of PennyStockFanatics.com- "Michael C. Gunn" (the pen name used by the Site's author and publisher) is a registered securities broker, dealer, advisor, and is not licensed to give financial advice, buy/sell/hold recommendations, or anything in the nature of financial and/or investment advice. Data and information are provided for informational and entertainment purposes only, and are not intended for trading purposes. NEVER invest based solely on our alerts. Before viewing any of our pages or subscribing to our website, all members, visitors, and guests agree and fully understand that the stock market and all financial forums contain implicit and explicit risks. That being stated, understood, and agreed upon, anyone who directly or indirectly uses the services and/ or products shall not hold PennyStockFanatics.com or any of its affiliates liable to anyone for any loss, injury, or damage resulting from the usage of this website. All users of PennyStockFanatics.com, whether member or visitor, agree that they alone bear complete responsibility for their own investment research and investment decisions, and that they will not hold PennyStockFanatics.com liable for any decisions or outcomes from actions made by them or others based directly or indirectly upon the reliance of news, information, research, or any other material published by PennyStockFanatics.com. PennyStockFanatics.com is not a licensed broker, securities dealer, or brokerage house. PennyStockFanatics.com does not and cannot execute any trades on behalf of investors. PennyStockFanatics.com is strictly an informational service and does not recommend any user take any specific action. All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in our newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof or the statements made herein. THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN 21

23 ANY SECURITIES MENTIONED. INVESTING IN SECURI- TIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE/ SITE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED OR REPRO- DUCED IN ANY WAY WITHOUT THE EXPRESSED, WRIT- TEN CONSENT OF THE EDITORS OF PennyStockFanatics.com. The information contained within this website is NOT a solicitation to BUY, SELL, or HOLD any securities mentioned. Furthermore, the provided data should not be used as the sole basis for making any investment decision. The individual investor s own due diligence is of the utmost importance and highly recommended. Never buy stocks based purely on our alerts. Investors are always encouraged to consult with their financial advisors, brokers, accountants, or attorneys and conduct their own due diligence prior to making an investment in any of our featured companies. Statements included within this site that are not historical in nature constitute forward-looking statements for the purposes of the safe harbor provided by the Private Securities Litigation Reform Act of Investors are cautioned that any information on this contains certain such forward-looking statements that involve substantial risks and uncertainties. When used, the words anticipate, believe, estimate, expect, and similar expressions as they relate to the company or its management are intended to identify such forward-looking statements. The company s actual results, performance, or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Further management discussion of risks and uncertainties can be found in the company s quarterly filing with the Securities and Exchange Commission and other periodic filings. PennyStockFanatics.com does not represent or endorse the accuracy or reliability of any of the information, content, or advertisements (collectively, the Materials ) contained on, distributed through, or linked, downloaded, or accessed from any of the services contained on this website (the Service ), nor the quality of any products, information, or other materials displayed, purchased, or obtained by you as a result of an advertisement or any other information or offer in or in connection with the Service (the Products ). You hereby acknowledge that any reliance upon any Materials shall be at your sole discretion. PennyStockFanatics.com reserves the right, in its sole discretion and without any obligation to inform anyone, to make improvements or changes to, or correct any error or omissions in any portion of the Service or the Materials. THE SERVICE AND THE MATERIALS ARE PROVIDED BY PennyStockFanatics.com ON AN AS IS BASIS, AND PennyStockFanatics.com EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANT- ABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICE OR ANY MATERIALS AND PRODUCTS. IN NO EVENT SHALL PennyStockFanatics.com BE LIABLE FOR ANY DIRECT, IN- 22

24 DIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE SERVICE, THE MATERIALS, AND THE PROD- UCTS. Individuals should assume that all information contained in the website about alerted companies is not trustworthy unless verified by their own independent research. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the SEC ) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice. The NASD has published information on how to invest carefully at its website. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at Readers can review all public filings by companies at the SEC s EDGAR site at We encourage you to invest carefully and read investment information available at the websites of the SEC at and FINRA at The area highlighting the past performance of our alerts provides information to the general public on selected stocks that have performed successfully. Other stocks profiled that are not shown may have performed better or worse than the stocks in the past performance section. Past performance should not be used as an indicator of future returns. PennyStockFanatics.com does not guarantee that the information shown as past performance is completely accurate. The percentage gain numbers may be based on end-of-day data OR intraday highs. We encourage our readers to invest carefully and read the investor information available at the websites of the Securities and Exchange Commission ( SEC ) at and/or the National Association of Securities Dealers ( NASD ) at 23

25 CHAPTER 10 Glossary of Common Terms This is profit that is earned through dividends or the sell of a security (stock). A capital gain is the difference between the sell price and the purchase price. Common Stocks When investors talk about investing in stocks, they are referring to common stocks. Common stocks are a representation of ownership within a company. Bears vs. Bulls Bull investors expect stock prices to increase, while bear investors expect them to decrease. A bull market is when share prices are moving upward, while a bear market is moving downward. Breakout This is the point at which the current stock price breaks out of a former trading range. The breakout can be either below or above this range. Broker A broker is an individual/firm that investors use to execute trades. All investors need a broker to buy and sell stocks. Capital Gain Common stocks yield the highest returns, but are considered higher-risk stocks. If a company decides to file bankruptcy and liquidates, then investors holding this type of stock get paid out last. Creditors, bondholders, and preferred shareholders get paid before common shareholders. Day Trader A Day Trader buys and sells securities within the same trading day. This type of strategy is for very active traders. Fundamental Research Fundamental Research is the analysis of companies and industries. The analysis consists of assets, earnings, sales, products/services, management, and markets. Economic factors are also considered in the analysis: interest rates, inventories, savings, and gross national product. Indexes 24

26 Stock indices are used as benchmarks to measure the performance of stocks. There are several indices utilized for benchmarking, and each one is unique. Intraday Trading stocks during a single trading day. Margin Account A margin account is a loan account provided by your broker. This account allows you to borrow money from your broker to purchase more stocks. Market Capitalization Market capitalization (Market cap) is the total amount of shares outstanding multiplied by the current stock price, which equals the total market value. For example, let s say a publicly traded company has 10,000 outstanding shares that are worth $10 each. So, you would multiply 10,000 by $10, and the total value of the shares would come out to $100,000. Market Makers Market Makers (MM) are broker-dealer firms that accept the risk of holding certain securities in order to offer them to the public. All market makers compete for customer orders by providing buy/sell quotes for a set amount of shares. Buy and sell orders are put through by Market Makers. They make their money on the bid-offer spread. Market Maker Spread The Market Maker (MM) spread is the difference between the buy price (MM purchased at) and the MM sell price of a stock. This spread is the profit that Market Makers make per transaction. Market Order A market order is an order requested by the customer to buy or sell a stock at the current market value. Customers place these orders with their brokers, which are then entered in the system as a market order by the broker. Merger A merger is when two companies combine as a single entity. The success rate of mergers is low, so it is very common for companies to handle the procedure as discreetly as possible. Offer Price The offer price is also known as the sell price (ask) of a particular stock. This is the price that a seller is willing to sell a particular stock at. Open Order An investor sets up an open order with his/her broker to purchase or sell a particular stock. Open orders are either set up as Good till Canceled or cancel out within 30 to 60 days if an order isn't satisfied. 25

27 OTC Bulletin Board (OTCBB) OTCBB is a U.S. electronic quotation system that provides real-time data for over-the-counter (OTC) equity securities. Companies trading on the OTC BB system are required to file their financials with the SEC. Outstanding Shares and Float Outstanding Shares: This is the total shares issued by the company. Outstanding shares are held by investors, the public, company officers, and inside investors that own restricted shares (shares not issued to the public). Repurchase shares by the company are not considered outstanding stocks. Floating Shares: These are shares that are available to the public to purchase. The amount of floating shares can affect a stock's volatility. If a company has a small float, then any activities could affect the price dramatically. A company that has a small float tends to have high volatility, because large orders can have a major impact on the share price: a large sell order can drive the stock price down; and a large buy order can move the stock price higher. A company that has a large float tends to be less volatile, because large buy/sell orders don't affect the supply as much. It's a case of supply and demand. Over-Bought This refers to a stock that has gone up in value due to an increase in demand for the stock; increase in buys. These buys push the stock higher, thus leaving the stock price too high. Over-Sold This is the opposite of over-bought. This refers to a stock that has gone down in value due to a decrease in demand for the stock; increase in sells. These sells push the stock lower, thus leaving the stock price at a much lower level. Penny Stocks Low-priced stocks selling for under $4.00 per share. These stocks are highly speculative and considered high-risk. Companies on the OTC market are not required to report their financials to the SEC. Quote The quote refers to the best bid (buy) to buy and the best sell/ offer (ask) to sell any stock at any time. Reverse Merger A reverse merger is when a smaller company acquires a larger corporation. The small company will benefit by becoming a publicly traded corporation, and will be able to bypass the up listing approval process. Most of the time, the publicly traded corporation that is bought out is known as a "Shell Corporation." This is due to the company having little or no assets. The smaller company acquires the shell corporation by buying controlling interest through a new issue of stock. Most of the time, the smaller company will take the name of the larger corporation. 26

28 Reverse Stock Split A reverse stock split is when a company decreases the total amount of shares available by combining the current shares into fewer shares. For example, if the company executes a 2- for-1 reverse stock split, then the company takes two shares of stock and combines them into one share. Short Position This pertains to stock contracts, which are sold short and have not been covered as of a particular date. Short Squeeze A short squeeze is when a company's stock (float) has dried up and the stock price begins to rise at an accelerated pace. This is a case of supply and demand. In this case, there is a high demand of stocks but not enough supply, which forces the share price up. Spread The spread is the range between the ask (price) and the bid (buy) for a particular stock. Stocks Stocks are securities that represent ownership in publicly traded companies and are sold by the share. Stock Split A stock split is when a company increases the total amount of shares available by dividing up current shares. For example, if the company executes a 2-for-1 split, then shareholders will get an additional share for every share owned. Swing Trader A swing trader is a trader that holds a stock for a day to a few weeks. Before buying into a stock, a swing trader already has his/her entry and exit points planned. Ticker Symbol A ticker symbol is an abbreviation of the stock name, which is used to identify individual stocks and the exchanges they are traded on. Undervalued Stock An undervalued stock is a company that is trading below its potential price; trading at a discounted price. 10Q and 10K Filings 10Q: SEC Form 10Q is a financial report filed quarterly with the Securities and Exchange Commission (SEC). This is done by publicly traded companies, except pink sheets. This report includes unaudited financial data and gives insight into the company's financial position. This report must be filed with the SEC for each of the first three fiscal quarters. The 10Q is due within 45 days of the close of the quarter. 27

29 10K: Every publicly traded company is required to file a 10K with the SEC. This is an annual report that contains everything about the company's business. Annual reports are free to the public and can be found directly on the company's website. The 10K provides information concerning the company's operations, finances, opportunities, and risks. 28

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