The 5 Ps of Coronavirus OTC Stocks
Dear Penny Stock Millionaire,
The coronavirus pandemic woke the sleeping giant in OTC stocks.
OTC stocks have had a bad reputation for years. When the “The Wolf of Wall Street” hit theaters in late 2013, it made a lot of people scared to touch OTCs.
But then marijuana stocks got hot and the OTC market showed signs of life.
And then it died. You couldn’t buy a play in the entire market for years. But the cycle repeated in 2017 when bitcoin went on its infamous run. This time, it’s all about the coronavirus …
While the overall market flirts with a bear, OTC stocks are volatile.
Many people are still scared of OTC stocks, but remember … they don’t follow the overall market. And…
My Top Students Crush OTC Stocks
Many of my top students started their trading careers with OTC stocks. Why?
Personally, I think they’re easier to understand. There are fewer factors to consider when making your trading plan. Plus, the risk-reward is far superior to listed stocks — especially on multi-day runs.
Here are some examples …
My most successful student, Tim Grittani, grew $1,500 into over $10 million. His explosive start in the OTC market is a big part of his success.
My latest round of six-figure students all grew their accounts trading OTC stocks. Michael Hudson aka Huddie, Jack Kellogg, Dom Mastromatteo, and Kyle Williams harnessed the power of OTC supernovas.
OTC stocks will always be some of my favorite plays. They can run for multiple days — spiking hundreds of percent in the process. Recently, many of my trades have been on OTC stocks.
Which is why you need to…
Learn to Play It Safe With OTC Stocks
It’s important to understand that 99% of OTC companies are crap companies. That’s why I don’t invest in them. Most of the time I hold them for a few hours or overnight at most.
Also, the OTCs I typically buy aren’t promotions. On the rare occasion a promoted stock has a HUGE morning panic, I’ll take advantage of it as I did on this sketchy stock.
But the SEC cracked down hard on promotions in the last five years. Their strict regulations are a big reason OTC stocks aren’t running as often.
Promoters used to pump stocks up all the time. Now, most of them are in jail. The few that remain aren’t very good.
Which is why I’ve been saying short sellers are the new promoters. But there aren’t many shorts in the OTC market either.
Moral of the story: take advantage of the OTC market when there’s opportunity. Like right now.
It’s a confusing time. A lot of money is exchanging hands. The market crashed, companies are starting to fail, and guess what …
The rich are still getting richer.
One more thing before we get to the 5 Ps of OTC Stocks…
Learn to Lock in Profits
I aim to lock in profits — sometimes too quickly. I almost never time the top perfectly. And I don’t try to sell at the top. When I make a trading plan and alert my students, I always emphasize my price targets. Most of the time, I’m looking for a predictable 10%–20% move.
If the stock follows my plan, I lock in a single. If the stock doesn’t behave as I expect, I cut losses quickly. That keeps my losses small compared to my wins. For newbie traders or those with small accounts, it can help prevent you from blowing up your account.
Now, let’s get on with…
The 5 Ps of OTC Stocks
#1. Keep Things in Perspective
Again, the majority of the time I exit positions too soon. Then haters always say…
“Tim, what’s wrong with you? These stocks can keep going — give it more time.”
They’re right — OTC stocks can keep going. But it’s inevitable that they’ll drop. These are crap companies. Their fundamentals are usually worthless, and they typically only run on a press release.
Then they drop again.
Here’s a great example from a couple of months ago with mCig, Inc. (OTC: MCIG).
MCIG was a textbook OTC breakout. But it gapped down the day after the breakout because it released bad earnings. That was the end of MCIG’s run.
Keep in mind, MCIG was up a lot — from 2 cents to almost 9 cents in only a few days. This 400% move is why I’ll always love OTC stocks.
I know, the chart is old … but study it. The same pattern repeats itself again and again.
Lately, many OTC companies have been “transitioning” to coronavirus companies. I don’t believe the press releases. But anytime a former runner has a new coronavirus catalyst … it can spike big. Here’s a perfect example…
Predictive Technology Group, Inc. (OTC: PRED)
First, check out the chart:
PRED announced a new antibody test that reduces the amount of time required to receive accurate results. The stock spiked from 40 cents to over $1.40 — a 250% spike.
This was an awesome opportunity. But if you look at PRED’s one-year chart, you can see in June 2019, the stock traded around $7. It’s been a long, slow death for this company.
I’ll say it again: 99% of OTC stocks are trash. They can offer great trading opportunities but are terrible investments. You gotta keep things in perspective.
One way to do that is to…
#2. Learn From the Past
OTC stocks are hit and miss. They’re usually great the first few months of the year because of the January Effect … Then they die off. Since the market’s cyclical, it’s critical that you learn from historical examples to prepare for future OTC runners.
Here’s a historical example on Texas Mineral Resources Corp. (OTC: TMRC)…
TMRC had a nice run from 30 cents to $1.50. That’s a 500% spike.
Now it’s back down 50%.
There’s no one specific way an OTC will drop. Some drop off in a day or two. Others take weeks or months. The question isn’t if they’ll drop — that’s inevitable. It’s when they’ll drop.
These moves don’t surprise me. And because I’ve seen it so many times, I often play it too safe. When you study the past, it becomes easier to see the patterns in real-time.
That’s when you’ll know that you…
#3. Know the Patterns
Each of these examples is making its way through my “PennyStocking Framework.”
It blows my mind hearing students complain about not understanding patterns. But they haven’t studied some of my most basic lessons.
For example, in February, CytoDyn Inc. (OTC: CYDY) had a nice run-up from 30 cents to the $1.50s just like TMRC. And when it started to crack, people wanted to dip buy on the first red day.
Take a look at the CYDY chart from February…
It hadn’t really bounced (yet). For weeks, people were asking, “Why isn’t it bouncing?”
Well … the stock was up big? Plus, it hardly panicked. I want to see BIG panics.
OTC stocks follow the same basic pattern. When they spike 400%–500% in a few days or weeks — be conservative.
CYDY was entering the sixth stage in my PennyStocking framework when the COVID-19 pandemic struck fear around the world. The company took advantage of the situation and transitioned its HIV drug to treat coronavirus symptoms.
CYDY announced the FDA approved of its HIV drug for COVID-19 trials. The stock gapped huge on the news … topping out at $3.50. If the company continues to update people on its trial, this move could just be beginning.
CYDY is a rare case. If you tried dip buying CYDY and got bailed out by the coronavirus news … you learned the wrong lesson.
#4. Be Prepared
Case in point … U.S. Lithium, Corp. (OTC: LITH). It was uptrending nicely so I wanted to take advantage before the trend turned.
I recognized it was overextended. I bought the first big green day with volume, but it was also the fifth green day in a row. Normally, I’d never buy the fifth green day. In hindsight, I also shouldn’t have held this overnight.
But because I was prepared, I had two profitable trades. I didn’t overstay my welcome, and I kept things in perspective.
I know this might seem complicated. Stocks might seem random and unpredictable. Trust me — we all started there.
Remember: preparation is key. Spend more time studying the past. Immerse yourself in the patterns. And not just the basics, but all the nuances too.
When you do that it can be much easier to…
#5. Adapt to the Present
I’ve been trading the same patterns for two decades. But that doesn’t mean they play out exactly the same every time. It doesn’t work that way. You have to learn to adapt to the present.
The first two months of the year the OTC market saw a lot of false breakouts. Then … the action dried up for a month.
People get tired of a pattern when it stops working. Breakouts can be powerful, but I recognized they weren’t working well at the start of the year. What happens one month might not happen next month.
Learn. Adapt. Prepare.
The moment you stop learning is the moment you start losing.
Currently, the OTC market are moving … but it won’t stay this way long.
That brings me to my next example…
No Borders, Inc. (OTC: NBDR)
The company repeatedly released coronavirus updates.
NBDR was halted by the SEC due to suspicious activity. The company is a total scam and took advantage of the coronavirus situation to pump its stock. The SEC’s action could be the beginning of the end for coronavirus OTC stocks.
This is another great example of why you need to cut your losses quickly and never invest in OTC stocks. NBDR had multiple spikes and plenty of great trading opportunities. Don’t confuse trading with investing. They’re very different.
The haters can tell me how risky these trades are … But guess what? I was prepared and took advantage of the news after it came out. I didn’t predict the moves — I reacted.
Bonus: Panics — Don’t Be Desperate for Dip Buys
I want to make something very clear about dip-buying … It’s not about buying the first dip.
Sadly, a lot of people don’t prepare. Dip buying doesn’t work every time. But if you study more, you can better understand how to adapt to the market.
When a dip fails, people freeze, like, “Ummm … why isn’t this bouncing?”
OTCs don’t have to bounce! Look at those charts again. They were up over 500% … and you think you’re guaranteed a bounce? Please. That’s not how it works.
Don’t be desperate. These stocks are up so much. And people try to dip buy them when they’re only 10%–20% off their highs … They think they’ll go right back to the highs.
Does that happen? It can. But stop trying to predict and start learning how to react to patterns. Newbies learn the wrong lessons when they dip buy a speculative OTC and it bounces back to highs. They start to think…
“Oh, this is easy. I can do it every time.”
Then they’re unprepared when a stock doesn’t bounce.
Frankly, it’s better if you don’t have a long position overnight. Why? The odds of a gap down or panic increase exponentially. I’d rather start the day fresh with a morning panic dip buy.
Play it safe. Conserve your mental capital and your real capital. It’s impossible to trade when you don’t have any capital.
Keep these coronavirus OTC stocks in perspective. You can’t expect all bounces to work perfectly. Nor should you expect these sketchy stocks to go back to their highs.
These are newbie mistakes. You set yourself up for failure when you aren’t prepared or you have the wrong expectations.
I want to keep you safe. I want to see you succeed.
It sucks if you get stuck in a stock that completely collapses. Especially if you have no idea of what’s happening because you’re underprepared.
Overprepare like Mark Croock has for the last decade.
Be obsessed with studying. Know these charts inside and out. Study up.
What do you think of OTC stocks? Be honest: are you avoiding these stocks for the wrong reasons?
Talk with you tomorrow,
Editor, Penny Stock Millionaires