Swing Trading Penny Stocks | Podcast Episode #348

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market. In today’s episode, we’re going to talk about swing trading penny stocks. We’ve done a little bit of talking about this in the past. We’ve done some episodes on it in the past.

0:41
But taking a little bit of a different angle here because I know the the lure for swing trading, penny stocks is really strong, especially when you’re first starting out swing trading, not understanding the risks completely. And you realize that, man, if I could just get right on one or two penny stock trades, I could make millions of dollars or hundreds of thousands of dollars.

1:00
But the lure for riches is very strong when it comes to penny stocks. When you talk about swing trading, Walmart or Caterpillar, not as strong, but penny stocks. When you think of the the possibilities of a stock that you buy, you know, 10s of thousands of shares at it, maybe a penny a share and it could go to $100 a share or even just $5 a share.

1:21
Man, that can really excite the person. And you hear about the stories in the past of man, if you would have bought Amazon back in, you know, the 90s when it was trading at a couple bucks or Apple when it was trading at a couple bucks, just think of how much money you could have made if you would have just bought it back then and held it until now.

1:39
The fact is, and I know there’s a lot of articles that’ll tell you out there, if you bought Meta back at the IPO, this is how much those shares would be worth it. You read those articles, like why would I just not do one of those? And so when you get those Ipo’s that come out, everybody wants to get into them because they want to be able to say they bought them at the very beginning and 1015 years later they’ve made a lot of money.

1:58
But also like with swing trading, penny stocks, it’s the same thing. You really hope that if you buy one of these stocks at at a penny a share that one day you know you can have the next Amazon on your hands or the next Apple. But there’s 10s of thousands of these penny stocks out there and very rarely does one turn into an Amazon or an Apple.

2:15
I remember back in the day when Yahoo was a publicly traded company, everybody was talking about, you know, having bought Yahoo and it was just pennies a share back in the 90s. And if you would have been able to hold it, how much money you could have made, Millions of dollars or whatever it was. But the purpose of the swing trading, the stock market podcast today isn’t so much about trying to tell you how to make tons of money off of penny stocks.

2:36
Because really, I would say 99.9% of the people that do it, and this is just my opinion, the people who do it, they lose their money, if not entirely. So it’s one of those things where the odds are greatly stacked against you. Yes, you can win at a couple of trades and make a lot of riches at it, but you can also win the lottery too.

2:54
And sometimes I’m not so sure there isn’t much of a difference in the odds of winning the lottery versus winning it big with a penny stock that sets you up for the rest of your life. So today’s e-mail, we’re going to call this guy Shorty because a lot of times with penny stocks you think that they’re heavily shorted and you’re just hoping that the shorts will get burned and cause this massive short squeeze that’ll send it to the moon or to the rocket or orbit Mars.

3:14
I don’t know what the terms are these days that people are using, but anyways, Shorty writes and it gave you a little bit of context too. This dude wrote me back a couple of days before he gave. He sent me two emails and and the first e-mail that he sent me, I just kind of blew it off because this is all he wrote.

3:30
He says I bought in a few days ago and up 55% in gains. I’m thinking to myself, one I don’t even know what the stock is. And I guess he did tell me on the subject of the e-mail that it was a Tupperware stock. I’m not going to do that kind of research for you, but he followed up a couple of days later with an e-mail that says a bit more context.

3:48
Thankfully I invested small money which was $15. No leverage initially, no stop loss as I was okay with losing the $15. I’m up 155%. I’ve been moving my stop loss up under the low of the day each day. Currently I’m at 106% profit if it was get taken out of this stop loss, he says.

4:07
I’m asleep when the US markets are open so I don’t have to watch those crazy price swings on the stock. I don’t move my stop loss up until after the session is finished. Well, that’s great. I mean, I think he’s got, you know, 37 bucks on his hands now that he’s turned that $15 into. That’s wonderful.

4:23
I don’t, I don’t look down on people for trading a smaller dollar amount. But I will say this, I mean if you’re trading $15.00 on a stock, is it probably going to ruin most people’s lives if they lose that $15? No. I mean, so I’m not not sweating bullets here for the guy, but one of the things that can happen, and I would say that Shorty here is at risk of doing this in the future, is that when he experiences that success of his capital going from 15 to 37 dollars, he’s going to start thinking in the back of his mind.

4:52
I wonder what it would be like to make that kind of a return with some real money. So what does he do? Probably puts $1000 on it, or maybe he puts $2000 or $10,000 on the trade. If he doesn’t have that, then maybe it’s just a couple 100 bucks. But even then, that’s if that’s all he has, that’s pretty significant money.

5:09
If it’s a couple 100 bucks and he can’t afford to lose it and then he gets into the next penny stock trade, which in no way, shape or form dependent on the returns from that previous trade because they’re not related and it doesn’t really care about the success that you had in a previous trade. This is a new trade, doesn’t know who you are, doesn’t know what you’ve achieved with a previous trade or what your track record is.

5:28
Every new trade could care less what you’ve done in the past. And so sometimes we get all big on ourselves when we’ve had some really good successful trades that we think that’s just going to carry over into the next trade. Next, trade doesn’t care. Market doesn’t know anything about you, doesn’t care anything about you, doesn’t respect you. It’ll take your money as fast as it can.

5:46
And so goes into the next trade. Yeah, he might have made 150% on a penny stock, which in this case it’s TUP. You guys may have seen it, may have even traded it in recent days. But for those who don’t know the background, it’s gone from like, you know, $0.60 a share all the way up to 375 a share over the course of the last five days.

6:05
So it’s been a very, very big move, a very dramatic move for the stock. Now he gets into it another trade and he has the $100 or a couple $1000, whatever it is, and thinking that he’s going to get that same kind of a return that he just got into UP.

6:21
And instead what happens all of a sudden that money goes down, it goes down 50%. And he doesn’t know that because he’s sleeping, because the markets open when he’s sleeping at night. And as a result, he wakes up the next morning not able to manage the risk. Like he probably showed up because he could have perhaps avoided a major loss on that trade.

6:37
Maybe it gapped down while he was sleeping way below his stop loss. That’s a possibility, but in the end takes a big loss on it, thinking that not watching the price swings during the regular trading hours is somehow a benefit to him. And it can be in certain situations. Maybe it keeps you from getting shaken out too early, but then there’s other times where it might gap way down below your stop loss.

6:58
Or even worse yet, let’s say for instance on this TUP trade that he’s currently in, he said he has a stop loss at 106% of the profits. So it’s he’s got 155% in profits right now. If it drops to where he only has 106% in profits, which I don’t know what the exact number is on that, he will get knocked out.

7:15
But let’s say it closes right at 107% where he only has 107% in profits. Markets closed, he wakes up, he says, oh man, I almost got stopped out today. So he goes through his day, goes back to sleep. That night U.S. stock market opens back up and it gaps down 50%.

7:33
Then all of a sudden he’s lost a lot of profits. And so how that applies to the next trade that he takes is that same thing could happen where he’s trading with a couple $1000. He’s got this confidence because of what he’s done on a previous trade when it was only $15, thinking that I will translate even with bigger money, that kind of success and all of a sudden he’s down 50%, blows through a stop loss, he’s not doing good at all.

7:55
And so swing trading penny stocks is a very dangerous thing. It’s a very dangerous, even from a day trading perspective, because the volatility is so out of control on so many of them. There’s usually huge volume issues as well with penny stocks. So you get into a penny stock, you may not even see a single trade happen for 30-40 minutes.

8:11
That happens all the time with penny stocks. In a couple years later, after we saw the whole crazy phenomenon with GameStop, people are still trying to recreate that same magic. You know, they’re hoping that somebody will lead them into this next great big one, whether it’s AMC or Bed Bath and Beyond or some other stock.

8:28
I know a lot of people are hoping that Sophie goes to the moon. That’s so if I that’s stock symbol. And it’s for the same reasons that they’re hoping that Wall Street Bets was able to move GameStop to astronomical levels. And for a second here, don’t kid yourself and think that the lessons that Wall Street learned from the retail crowd playing the GameStop stock like they did, that they haven’t learned lessons and implemented measures to prevent that from happening again to them.

8:52
They’re much smarter about it this time. And the other thing that you got to realize too, and I don’t think a lot of people think about supply and demand. You get these people who have been holding this TUP stock that has gone from $3738 a share from back in 2020 and 2021 all the way down to a penny stock.

9:10
And they’ve seen a lot of their shares almost become worthless. That you give them 150% or 200% increase over the course of a few days that they’re not going to go ahead and say, you know what, this is my opportunity to get out. And those people, they have millions and millions of shares, probably of that stock.

9:26
And you got retail buying $15.00 worth or $30.00 worth or even a couple $1000 worth. And you think that they have enough bids to be able to absorb that 68% of the float for Tupperware. TUP is held by institutions. If they decide to, they want to sell the stock.

9:44
There’s not enough retail out there that can absorb all of that. And So what happens, the stock comes right back down. That’s why they call them pumping dumps. Retail pumps them up sometimes. Maybe it’s Wall Street that pumps them up. You know, in terms of spreading rumors and getting people all hyped, they want to go buy into it and then they offload their shares and there’s not enough demand to absorb all of that supply.

10:04
That’s just being dumped out there. And as a result, price comes crashing down. And if you want to give the the benefit of the doubt to the institutions to not want to sell, to want to ride that gravy train up there with you guys or that belief that you think that you’re going to be on the gravy train, guess what? There’s 181 institutions it probably doesn’t take, but maybe one or two of them to really cause havoc for you.

10:25
But one thing that I would encourage you to do is go to swingtradeinthe-stockmarket.com. Check it out. It’s my patron website that goes alongside of this podcast. If you’re listening to it on Spotify or Apple, or if you’re watching it on YouTube, just click down below the join button. You and you can also become part of swingtradingthestockmarket.com as well.

10:40
What do you get with it? You’re going to get all my market research each and every day, multiple videos that I’m sending out throughout the course of the day, including updates on the overall market that’s also going to include updates on big tech. My weekly watch list, my master watch list for goes bullish and bearish stocks that I’m following. Also daily watch list of stocks that I’m looking to possibly trade if there’s a lot of good stuff out there and I would encourage you to check it out.

11:01
swingtradingthestockmarket.com Now then the next question about swing trading penny stocks. If I don’t like the idea of buying penny stocks or even trading them whatsoever, then why do I not short penny stocks? It seems like it’s so easy. Okay. You can get on the side of the institutions when they’re offloading their shares.

11:18
When you get one of these big pumps, you take its stock like KSCP just recently. That goes from, you know, 30-40 cents a share all the way up to 225 a share, and then it comes right back down to dollar 51. So why not short that? You can make a really good money, right?

11:33
No, you can’t. Because here’s the problem. If you’re off by one day, some of these stocks, they move 7580% in a single day. Sometimes they move two or three 100% in a day, and it can happen as a result of a gap higher. First, it’s very difficult to find the shares to short. Now I know there’s people that will say that we specialize in hard to borrow shorts.

11:51
I’d probably stay away from those. It’s my belief that if I’m going to short stocks, I’d rather be with a good institution that’s probably not going to charge me an arm and a leg for margin rates because it requires margin be able to short stocks and margin rates, especially with that the Fed rate hikes of late, they’re pretty high right now.

12:07
You can pay 1213% and interest by going into margin. And like I said, if you’re one day off on the stock falling apart, it can be a margin call for you where it doesn’t matter if you have conviction about it, the brokerage doesn’t have conviction about it and they’re going to liquidate your position.

12:23
If all of a sudden you’re down 100% on the trade or 200% or whatever the margin rate requirements are for shorting a penny stock, if they let you even short that penny stock to begin with. And so one day off and shorting a penny stock overnight can be a rest in peace moment for your brokerage account.

12:42
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13:03
Make sure to keep sending me questions. ryan@shareplanner.com I do read them all in some crazy emails like this one here that I got. I made a podcast episode out of it. So send me your questions, tell me your stories. I want to hear about them. And make sure to check out swingtradingthestockmarket.com.

13:19
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13:40
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14:00
All the best to you and I look forward to trading with you soon.