Hot Stock Market Commentary:
Market-Moving Commentary — ICS listeners make money!

Most short-term traders are notorious for chasing "hot stocks." The average investor though generally avoids this approach. He has been warned that hot stocks will get him into hot water. The truth is, many small investors who have received poor or lukewarm returns in the past fantasize about discovering hot stocks that would compensate for some of the equity they feel the market owes them. Those stocks are really the one thing that all investors, both short and long term, desire. Most of them, however, are afraid to act on stock picks of this sort, whether it is legitimate or not.

The one thing that many investors overlook is that a "hot stock" is not necessarily always a hot stock. The company may coast in neutral for months before or after a significant upward move. Limited resources may force an investor to trade out of a hot stock before it heats up, and he ends up even more frustrated as he watches the poor performer he weeded out last week turn into this week's hot stock. After a few such experiences, he decides he's finished with those securities, and will stick to bonds, blue chips, or whatever he considers "safe."

Day traders and swing traders take a different approach. Their goal is to capture the stellar movement — when the stocks is truly hot — as close to the event as possible and then move on to the next one. That's what profitable "hot stock commentators" do with their stock picks. This creates a constant vigil for volume signals, pattern formations and volatility indicators. Hot stocks are tracked by extremely sophisticated software programs and mathematical systems. However, no one has come up with the ultimate hot stock radar to make totally accurate stock picks so far. Each method has its own benefits and drawbacks. Some perform well in bull or bear markets, while others specialize in plucking out hot stocks from a dull market.

Ultimately, trading hot stocks expertly involves having timely and accurate information. Laser focus and strict trading discipline are also required to keep up with the ever-changing world of hot stocks. A mentor who has mastered this art is a great boon to anyone who aspires to become an expert in hot stock picks. Observing the entire process of tracking down a hot stock from start to finish will impress the novice and give him a new appreciation for the work required to uncover these stocks at just the right moment.

Done correctly, the results of trading stocks on a short-term basis will far out pace those derived from the more traditional forms of investing. However, one must be sure that self-discipline is exercised constantly to avoid the pitfalls of greed and fear. Most importantly, one must have exceptional and timely information to work with. Without it, the stellar hot stocks will always be just out of reach, so choose wisely to ensure success.

Dollar for dollar, investors can make more money by day trading or swing trading penny stocks than any other type of investment plan. The main factors that contribute to this are volatility and price. The famous (or infamous) volatility of penny stocks gives them the potential to double — or even triple — quickly. While this aspect makes them risky as well, penny stocks are most suitable for funds one can afford to lose. Risk capital is different than investment funds, which must be protected. Investment funds, like those for college and retirement, are better suited to growth and dividend yielding stocks, respectively.

The second factor that makes penny stocks attractive is the price. One can control a vastly larger percentage of the float with a given amount of money. More importantly, the number of shares purchased is much greater proportionally, and any movement in the stock will be magnified by that factor. For example, investing $100 in a typical blue chip stock might buy one share, and a .10 move to the upside would yield .10 in potential profit. Investing the same $100 in a penny stock trading at 1.00 will purchase 100 shares, and the same .10 move would give 100 times the profit potential, or $10 for the same initial investment.

The volatility of penny stocks allows this phenomena to work. Logically, one would assume that penny stocks move in the same ratio as blue chip stocks or any others. However, this is not the case. In fact penny stocks often show even larger moves than other stocks due to the speculative nature of the underlying companies. This pulls in even more risk capital and the volume surges, creating big moves in penny stocks. By the same token, when day traders and swing traders take profits or losses in the penny stocks, you will see the opposite reaction to the downside.

Day trading and swing trading are methods that capture quick profits from penny stocks while they are trading actively. Once the interest wanes, day traders and swing traders will move on to the next interesting trade unless they feel the company has value in the long term. In that case, they may add it to an investment portfolio with other penny stocks that show good fundamental value for the longer term. Day trading and swing trading are fast-paced, laser-focused techniques, and are certainly not for the faint of heart or shallow of pocket. The rewards, though, are great and many aspire to master these styles of trading.