Chapter Four: Penny Stock Terminology

Written by dzi11

Updated 12/20/2020 4 min read

Penny Stock Terminology

Penny Stock Terminology is essential to this course. Are you ready for more stock market terminology? Again, the words and phrases I’ll cover in this chapter are very basic. I’m going to treat you like a baby because you really need to learn from the bottom up. Here we go…

Buying And Selling Stocks

To BUY. What does it mean to buy a stock? Basically, you buy shares because you’re hoping for a rise in stock price.
To SELL. If you think a stock’s price is headed lower and you want to get out of your position, you sell your shares either for a gain if you bought the stock at lower prices or for a loss if you bought the stock at higher prices than where you sell.Very simple.
SHORT SELL. Now, here’s where things get fun… Selling short is rarely used by the general public, but it’s a very common strategy for me, and it’s one I use in about 60% of my trades (basically, it’s made me a huge amount of money, millions of dollars infact). All you’re doing when you sell short is selling shares you don’t own, thinking the stock price is headed lower.
Yeah, the “shares you don’t own” thing can get complicated, as you’re taking a negative position by taking a loan through your broker. The key point to remember is that, if you’regoing to short sell, you’re thinking that the stock price is going down.It’s that simple.
To get rid of your short sell, you BUY TO COVER. That is, you close out your short position by buying back the shares you sold short. Again, just like you’ve heard, where you want to buy low and sell high, it’s the same thing with short selling—only reversed. You want to short sell high and buy low. This scares a lot of people, but the end result is that you can make money when stocks go down. Because a negative times a negative is a positive
I’m sure a lot of you don’t think that you have to be bullish—that you have bet the stocks you’re trading will go up—all the time, and that’s simply not true. Most penny stocks don’t come from solid companies—they come from POS companies that are going to fall apart sooner or later. So when they inevitably fail or when their stock prices drop, you should be able to make money short selling. I’m going to focus a lot on this in this guide, as you really need to be able to go either way to maximize your own trading proﬁts.

Now that we’ve got that settled, here are some more terms you need to know about buying and selling stocks:

The BID is the current highest price that somebody’s willing to pay for a stock. The ASK is the current lowest price somebody’s willing to sell their stock. The difference between the bid and the ask is called the SPREAD. So you have all these bids lined up and all these asks lined up. And in the center, that’s when stock trades get executed.
Think about it like a house sale. If a seller is asking $500,000 dollars for his house, and the buyer puts in an offer of $450,000 dollars, the $500,000 dollars is the ask, the $450,000 dollars is the bid, and the $50,000 dollars between the two is the spread. The buyer and seller will have to negotiate to meet somewhere in the middle of the spread for the deal to be executed—just like stock buyers and sellers have to ﬁnd a common price before their trades can go through.
When a stock trade is higher than the previous trade, it’s called an UPTICK. When the stock trade is lower than the previous price it’s a DOWNTICK I’m not going to get too far into this, but you need to understand these terms. Google them and have fun with that.