Stocks That Make Kool-Aid Status
Stocks That Make Kool-Aid Status: How Popular is my Stock?
By Bill Panetta
President of Breakout Trading
www.breakoutrading.net
That ghost of Jim Jones works in mysterious ways on the OTC BB and Pink Sheets Exchanges. There’s a special type of ‘Kool-Aid’ drink that traders and investors enjoy when trading small cap stocks, and this article will give you some insight into how to identify and protect yourself from sucking in too much of the red stuff. Let me stress, this article is not to degrade or put down traders or investors for buying these type stocks at all (I make good money on these type of plays all the time), we’re merely looking to get better at selling rather than hanging on and taking a positive trade that turns into a losing situation.
We have all invested or traded some big name penny stocks in our trading career. We all know the type of stocks that I'm talking about. We’re going to try to make some sense of when to sell these types of stocks.
In this article we are going to look at the Psychology (Message Boards) combined with Technical Analysis. (Charts). The Psychology part of trading is very important to my success as a full-time trader. A big motivation for me in writing this article is I have seen plenty of good buy-side traders, some of them close friends, make great buying decisions and then have no idea or clue when to sell a stock that they have nice profits in. The investors and traders that we are talking about had tons of profits in these stocks. What were going to try to accomplish today is getting better at taking profits, especially on KOOL AID (cult) Stocks.
Kool Aid Stocks have stories that claim will revolutionize the world. You have heard them before, Cures for Cancer. Billions in Diamonds. A blimp that was supposed to revolutionize Wireless Communications. Big contracts with Circuit City. Recently a CEO that claimed his penny stock was worth upwards of $50/share. When these types of stocks get mainstream exposure, they suck in novice investors what I call the 9-5 crowd and the frenzy begins. Now friends and relatives are in. The message boards are packed, with multiple posts per minute. Everyone is going to hit it big. Any detractors of the company are considered ‘bashers’ or believed to be ‘illegally short’ the company. They get banned, insulted, and attacked in groups. It can get pretty ugly. As the stock continues higher, the 9-5 crowd is hooked and now looking for that ‘retirement’ profit. They have no trading experience nor do they understand what Mass Psychology (Message Board Hype) , is or what to look for on the technical side (Charts). The fortunate part is that some of these people get lucky enough to make some money, but then, almost inevitably, the GREED kicks they drink the KOOL AID and something mysterious happens, there dream investments starts to go south.