Description

My basic trading philosophy can be summed up by one simple quote:

"Trade the ticker, not the company" - Nate Michaud


Monday, March 24, 2014

Question: "Why do you prefer trading OTC Stocks?"

There are two main reasons why I prefer trading OTC and Pinksheet stocks over stocks that trade on the major exchanges:

1.The Level 2 Advantage

Most OTC market makers do not offer instant executions. This creates the stacking action from market makers in level 2 that I love to analyze and makes it much easier to time exact tops/bottoms during volatile periods. You can see further examples of what I'm talking about in my level 2 posts. Listed stocks have instant executions, so you do not get the same advantage from level 2.

2. Chart Patterns are More Reliable

I have found that OTC stocks trade based off chart technicals far more than any kind of fundamentals. Perhaps this is because most OTC stocks are garbage and have no fundamentals at all. Also, the overall market tends not to affect the patterns. The tweet below from Modern Rock sums it up best:


Of course there are challenges with OTC stocks as well, such as getting executions or finding shares to short. This is why it's important for you to have the right broker(s) if you're going to trade them. (Which broker will best fit your style is up to you, so please don't ask me.)

I hope this clears up any confusion about why I prefer OTC stocks. Remember that this is just a personal preference - do not interpret this as a statement saying OTC stocks are better to trade. What is best for you to trade depends on your personality and the strategies that have been successful for you.

11 comments:

  1. The other thing about OTC markets is curious individuals who pump stocks - like WoldofWeedStreet - and stocks the price action of which is completely unpredicatable - for instance VKML (one or a group of buyers pumping the stock insanely around 11), UTRM (total scam - yet almost 100% rise), MINE (vitamin water on steroids lol) I am so confused... I dont trust the wolf and I dont trust Ihub and I don't earn any money. I don't lose any either. Its a great day today!

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  2. Tim, can you give me some advice on my dilemma? What to do, a point of guidance?

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    1. You need to focus less on who's pumping it and more on factors such as volume, liquidity, and chart patterns. It's okay to miss plays sometimes, I frequently do. Find the setups you like, and focus on those. The rest is just noise

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    2. So you are saying its ok to invest in something, even tough you know it is a complete fraud? Well I guess I already know the answer. Because its one thing reading Sykes' blogs and learning about "the gutter" and another to actually go do the research and realize it on your own and then to pull the trigger myself. I just needed to hear that to have a bit of courage. Trade the ticker, not the name.

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  3. Thank you, Tim!

    That's what I was thinking too..More reliable chart patterns and more reliable level 2. Still, the executions are a pain...

    Anyway, thanks for this post!! Keep 'em coming!

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  4. Easily manipulated stocks, OTC market riddled with frauds posing as "gurus" when they are nothing more than stock promoters, horrible executions & skimming off the top by MM...the list goes on & on why the OTC market is a pretty horrible place. That being said there is still money to be made. And some people are quite successful in the OTC market. I've seen more blow up their accounts than successful traders. Just my personal opinion after 6+ years trading on all markets.

    Best of luck to you all. Trust the rules, your system & check your emotions at the door. Trade the price action/volume in the now & not what you "hope" happens.

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  5. Hey Tim,
    Off topic but how do you set up and seperate info on your screens? Thanks!

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  6. Thanks Tim for all the generosity with your knowledge.

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  8. Great post! I am starting my own blog and can't wait to provide insight like this to my viewers.

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