Looking for the best penne : Putting together a watch list without a stinking face. (Post 19/45)

(If you're interested in my previous posts, f o l l o w m e !)

Welcome to post 19.

Before I get too deep in to it: If you need financial advice, tell me, I start here. Financial advice, be free to contact me. Any financial tips you may have, please e-mail me. Second one is, if you want to see the previous posts, follow the two tags here so you don't miss it.

In the last post, I explained to you about the face melting, violent short squeeze. When short sellers panic and have to pay back the losses on their positions, they are seen shooting the price of penny stocks straight up.

With well over 10,000 stocks out there, then exactly how do you locate 3 or 4 pennies doing this throughout any session?

You create a scanner. In fact, most watch lists suck.

This is the exact psychology for how it works.

Suppose that a completely random penny stock hits the "Top Gainers" list on your broker app. A mass of new traders examines the list and decides, "This one is up 80%! It is for sure going to be $5!"

Therefore, all buy the stock at the top level of the market. They think gravity will simply go away and the stock will continue to rise.

However, it doesn't...

The movement is already stalled. The smart money is selling what they bought low to the late retail money. It doesn't have a breakout, it ticks down. You've just purchased the ultimate top.

Those retail traders are reacting rather than predicting, so they are continually in the situation of having bags of deadweight dollars. For this to be solved, your scanner has to have three definite rules.

Think about how it will impact your trading process. Rather than taking a wild stab in the dark, you're whittling down the whole customer base to a certain subset of criteria.

The first, Relative Volume (RVOL). I don't bother with a green stock. When it normally trades 100k shares a day, and it is trading 3 million shares before the opening bell? This is what really counts. Crowding in of institutional and retail money as massive RVOL.

Second, The Float. You'd like to have a few shares in the air.You'd like to have limited available shares. Typically less than 15 or 20 million shares. If there is only a small volume of shares available to the selling order, the price skyrockets! $1.00, $1.50, $3.00!

Third, The Catalyst. What is happening now that people are purchasing these pennies? Is it legitimate news or an FDA approval? Or simply a random Twitter pump? Knowing the reason for its movement, you'll know when the hype will die.

All these concentrated filters are released simultaneously. No more 50 random tickers to match with. Your eyes are on just the 3 or 4 penny stocks that could run a 200% return.

As of this writing, if you're looking to catch the RVOL early and then lock in your profits, you can do that in a quick manner. The set up is to be taken into consideration, otherwise you run the risk of losing your account if you simply follow the list of the top gainers.

Well, that's the scanner mechanics explained, so now, how the heck do you deal with a stock with an insanely small supply?

Normal floats exist as well as micro floats.

You don't have to build up your own expectations on how they're going to respond. In post 20, we're going to explore some of the details of Low Float vs. Micro Float and the importance of share supply.

Let's meet with the next post like this.

In this post, we ran down what we believe is the best penny stock scanner, with only 3 criteria and that one was Relative Volume, tight float sizes and finding the catalyst.