How It Works

Have you ever wondered what makes the OTC market tick?

Why is it that OTC stocks can make huge price gains that seem to happen for no reason?

Why do some OTC stocks seem to go straight up for a while but then come down faster than they went up?

What can I do to make money in these stocks and not lose my shirt?

Anyone trading this market needs to know the answers to these questions before they will have any success with penny stocks.

Once you understand this market, half the battle is over and you will make smarter trading decisions.

Ready?

Let's start with a general question "Why do stocks go up?"

If you ask 100 people this question, most will tell you it has to do with the quality of the company, technical analysis, fundamental analysis, earnings or news.

The truth is they would be wrong.

Stocks go up because there is more buying than selling. PERIOD.

Those other answers may be contributing factors to why people buy stocks but are not the reason stocks go up.

The reason I point this out is because EVERY DAY penny stocks that are not high quality companies, have horrible charts, no financials to speak of, and boring news make HUGE runs.

You need to get comfortable with the fact that when it comes to penny stocks and making a profit, company quality has nothing to do with it.

This leads us back to the question "what drives penny stocks and how do I find them" and the answer is ...............

PAID EXPOSURE

There are over 63,000 public companies around the world all looking to attract shareholders so getting the word out is necessary to get the attention of the investing community.

Because penny stock companies do not receive the traditional coverage of major media or analysts like their big brothers do, if they want to get their story out or keep investors informed, they have to pay for it.

There is nothing illegal or unethical about this. Every day you see the fortune 500 companies listed on the NYSE or AMEX pay for all types of investor and public relations campaigns using ads on TV, radio, trade newsletters and journals, newspapers, and social media.

If you have any doubt about this do your own research. Go to pinksheets.com or otcbb.com and check out every press release issued that day. Then check the volume and price, you will notice that most of the stocks that issue news barely trade. They may come out with great news but because there are SO many companies most will never get noticed on their own.

These advertisements are also known as investor relations (IR) campaigns and are designed to generate positive exposure to the investing community of the company.

When you see a penny stock making a BIG price gain, and it seems to come out of no where, it didn't, the move can almost always be traced back to one of these exposure programs.

This is critical. These advertising campaigns are what drive investors to penny stocks and are the key to you putting money in your pocket.

Here is how it works.

Media buyers are hired to generate exposure of a penny stock company.

One type of advertising media buyers use is newsletters like this one.

The advertisement alert/profile goes out to the subscribers.

Some readers will like what they see and buy the stock.

Traders who understand how penny stocks work will jump in as soon as they get the newsletter because they know the best time to get involved is at the beginning.

This usually creates a spike of above average trading volume and the price often heads higher.

Now the stock ends up on scans used by traders who are looking for what is hot for the day.

New traders will jump in creating even more volume on the buy side potentially sending the stock even higher.

At this point the message boards and chat rooms may heat up as more investors are wondering what is going on.

Some of these people will want to get in on the action as well sending the stock higher still.

This frenzy can last anywhere from hours to weeks depending on the size and length of the advertising campaign and how good the story is.

This happens day in and day out on the OTC market. It is what drives these stocks.

These campaigns are a numbers game. When it comes to advertising SIZE DOES MATTER.

Think about it, If exposure is what drives investors to penny stocks would you rather get an alert on a stock 1,000 traders will read about in the next week or 1,000,000? Simple right?? The more people that see a story the bigger the buzz gets and the more upside potential there is.

Our newsletter is one of the largest in the industry so you are in the right place. If the media buyer has the budget to advertise with us you can be assured they are looking for the most exposure possible.

Now that you know what drives this market you are in a much better position to trade penny stocks.

Please make sure you read our Trading Strategies Section next. You can do that by clicking here or in our navigation bar.