Trading the Pennies

Run this exercise. Go to Yahoo Finance (or your preferred charting site) and create a chart for UCL using daily bars and a 3-month lookback. Next, slap on an indicator such as SuperTrend, thusly.

That’s one you’d liked to have caught, right?

Now come some realities. For every penny stock tracked, maybe only 3% to 5% are worth charting, and fewer are worth trading. So the process of finding 'em has to be automated. Fortunately, there are plenty of legacy scanning programs that can slam through a list of 500 stocks in as little as 8 seconds to pick out the few that might be worth digging into further. So, software isn’t a problem, nor are data feeds. What’s the problem is the discipline to do the scans, do the charting, size the positions, and then manage them.

Also, there’s this problem. If one already has more money than one needs, why spend time trying to get more of it? The only answer I can think of is that it’s too cold to go fishing right now. So I might as well see what can be done using a purely technical approach for putting money to work, and the pennies are a convenient challenge that our dear forum hosts try to discourage for reasons they are never able to defend as they proceed to tout stocks whose funnymentals and technicals are far worse.

Go figure, right?

So, let’s go back to basics as laid out by the Father of Value Investing, Ben Graham, in his The Intelligent investor. Paraphrasing freely, he distinguishes betwee three types of investments and investors – Defensive, Enterprising, Speculative-- and suggests that very little money – if any-- should be allocated to speculative adventures, which --incidentally-- is the whole of TMF’s investment program.

So, let’s follow his lead and suggest that --at max-- only 1% to 2% of one’s portfolio could be allocated to “trading the pennies”. If that’s the case, then why do it? Because if you can learn to manage their risks, you’re far less likely to make stupid, avoidable mistakes with your bigger, supposedly safer positions, which aren’t safe at all, given that we’re in a bear market and that when prices crash, what gets sold is what can be sold, not what should have been sold, long before.

Yeah, yeah. I’m not offering anyone advice. Just thinking aloud as I get back into trading again as a replacement for “time on the water”.

Fishing? Trading? It’s all the same, right? and probably just as expensive.


According to Schwab’s stock scanner, there are 948 stocks priced $0.50 to $4.00 that trade with an avg vol of at least 50k shares. 948 stocks is too many to hand chart. But scanners can be programmed to look for breakouts, and the results can be hand charted for further culling. Here are nine that might be worth a look: CHRA, BRFS, ILPT, SWIM, MCG, WLMS, STRR, OLMA, TIG.

You’re on your own what you do with that list.

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Here’s another from that list of nine that has worked out well today.