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Short Selling Penny Stocks for Fun and Profit

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Betting to Fail: Short Selling Penny Stocks

short selling penny stocks

It takes the heart and strength of a lion to take on the challenges of short selling penny stocks. Small cap stocks carry a huge risk when buying and the potential for loss when it selling them short is even greater. Betting against a multi-million dollar advertising campaign and the backing of an IPO brokerage firm takes guts and very precise technical studies. The only way you can profit from this contrarian strategy is to learn to do your homework very well, develop nerves of steel and follow your trading plan without question.

Many small cap stocks are overhyped in what is known as a “pump and dump” strategy designed to make money for a single operation. The process is very simple. A company, often a brokerage firm, will buy a large block of shares with the intention of selling them at a predetermined point. The brokerage house will then advertise and create buzz about the industry and then the company. They will hype the stock to purchased lists of stockowners, and produce press releases and emails all designed to get the price of the stock to rise. Once it hits the predetermined price, the brokerage firm sells their position, effectively dumping the stock and causing the price to fall very quickly.

Learning to Recognize the Signs to Profit when Short Selling Penny Stocks

The first method of recognizing a small cap stock getting ready to tank is by getting on as many stock related email lists as possible. You will then begin to see emails come across your inbox, and this is the first place you begin to look. Research the company, discover whether they have actual offices or virtual offices, learn about company management and discover who owns the largest blocks of company shares.  All of these items are a good sign that it may be time act. As a long-term strategy, short selling penny stocks is a very aggressive and risky move that should only be attempted with non-essential risk capital.

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