When Trading Stocks
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Buying, Selling & Trading Junior Mining Stocks
When it comes to trading junior mining stocks, a lot of people think that they are the same as any other equity. Sure they do trade the same as any other hot penny stock out there but the charactarists of them is quite different. There are many things to be aware of. One of these is whether to day trade the stock or swing trade the stock or just hold for the long term.
Firstly, most of these mining stocks are Canadian stocks so you will need to find a penny stock broker who deals in Canadian gold stocks and Canadian mining stocks if you want to buy or trade penny stocks that are in the junior gold sector. Also because a lot of these stocks can be pennies in price a lot of people think that you can make a lot of money. After all a 10 cent stock just has to go to 15 cents and you made 50% on your money. Not bad considering some of these stocks can explode to the upside by the 1000%. That is why a lot of people trade penny mining stocks as a living. But what most fail to be aware of is that a lot of these stocks are very illiquid, meaning, they don't trade very much. It is easy to find a 10 cent stock but when one looks at the trading range over the past year or so you may be see that it has not traded very often. Or the trading volume is slim. Buying a stock that you can't sell or the spread between the bid and ask is wide is a sure way to loose out. For seasoned savvy investors though, buying gold stocks is a just another way to buy gold online.
Secondly, most junior mining stocks are owned by companies that depend on venture capital or private placements to keep them funded. Because they are in the exploration business, they do not have a way to generate any income. They just spend it. They may have mineral property or the rights to certain properties, but as they say in Canada, it could be just moose pasture. Without any good drilling results in the ground or good assays, there is not much to get excited about. Exploration in remote areas of the world is a very costly venture. Litterly millions of dollars can be spent on a maybe or what if. But as history shows so often, when it comes to gold and gold mining in general, people are always willing put out the money and make their bet. Precious metals always holds the fascination and dreams of easy riches and wealth. Mention gold and most investors rich and poor will raise to alertness.
A lot of these companies are kind of like sheep. Meaning they follow one another around. Or so it seems. One company finds a hot spot or new strike and it seems the staking rush is on. In a matter of days all the surrounding properties can be snapped up and staked. You can always see this in the trading activity of the stock with these companies. The one who finds good results, the stock price shoots up. Those who have property around or close by will see some activity in their stock trading to the upside. People have a tendency to chase to rumors. Some refer this to ambulance chasing. People who trade penny stocks refer to this as "Buy the rumor, Sell the news".
Where Does One Begin.
Most of these junior mining stocks are owned by small companies. The bulk of them, probably 75% are Canadian stocks. Canada is known as a world leader in mining. The (TSX) Toronto Stock Exchange and the (TSX:V) Venture Exchange is where a lot of these mining stocks trade. Vancouver British Columbia use to be the hub for junior mining stocks around the world and still is. The old exchange was the Vancouver stock exchange, the (VSE). Australia is getting to be a large junior mining place because of their vast resources and a lot of their junior mining companies trade on that countries exchange, the (ASX). Still others trade on the pink sheets and the Over The Counter Bulletin Board. (OTCBB).
There are maybe a few hundred or so of these junior mining stocks that trade on the ASX Australian Stock Exchange and also there are those that trade on the OTCBB in the US. Also exchanges in Europe and South Africa the (JSE) have small mining companies listed. But an over whelming majority are listed in Canada on the (TSX) and the Venture (TSX: V). We have a complete global list of stock exchanges right here.
Trying to sort through all the junior miners companies can be a very daunting task. Trying to find ones with potential is like trying to find the needle in the haystack. It would be like taking 1600 spots on a wall and throwing darts at the ones that will be a winner.
One of the ways we have played these junior mining companies and have done very well with is buying a subscription from someone who does all the work of reasearch. There are those kind of people who do that and to pay them about $40 bucks amonth is chump change considering I can make thousands in return. The Midas Letter is one such paper that comes out monthly with good updates and information. It is geared strickly towards junior mining companies.
Where & How To Trade
While most online brokers will have a stock screener where you can put in the price, the industry, the trading range etc. there are also other sites like the Globe and Mail or the Finacial Post. One of the best is Investors Business Daily but they do charge for a subscription.
Another good place to start your research of these companies is right here on Juniorminers.com. This website has alone has over 1800 junior mining companies listed and this list keep growing. Each company has it's stock ticker and exchange plus a link to it's website.
There are many other places on the internet to find which stocks are having a lot of trading activity. Places like Stockhouse will have each day and throughout the day various news blips on the hottest performing junior stock. This will give you an idea of who is doing what and where. Stockwatch has fair coverage of news releases of penny mining stocks. These news releases are there to let the public know of any material changes to the company. It could be anything from drilling results to land acquisition and anything else in between. Kitco has a front page of new releases updated by news feeds plus as an added bonus you get updated real time metals prices and gold prices. These are sites one should have on their favorites list. I would like to caution that on chat rooms and bull boards you have to really do your own due diligence because of those who bash or worse yet, those who have bought really low and start to pump the goods about the stock only to dump it out. This is called a "Pump & Dump".
Knowing When To Buy
Knowing when to buy can be extremely tricky. Because these companies stocks can go for months months or even years with very little movement, timing and entry point is very difficult. What we like to do is wait until the first pop in the stock price has been made. This pop in volume and price will usually get noticed on most stock sites, chat rooms, trading blogs and bull boards. After the first flurry of activity has happened the stock will have a tendency to fall back as profit taking occurs but the interest is there. Depending on what the press releases may say this will help us judge whether to buy or sit tight for a bit.
Knowing When To Sell
Of course we get quite confused as humans do as to "when to sell". The timing to sell can be just as difficult to know as the time to buy. Most stock traders will tell you though that if one is up 30% and it looks iffy, why hold? A lot of these stocks will double and for us that is more than plenty to take our profits and move on. You can always get back into the same stock at a later date if the the news and performance is in your favor. When all you get from a bank is 3%-5% annually, a double in a month or so just isn't hard to take.
What are warrants and how to trade them.
Warrants are rights to buy stocks at a certain price until a certain date. They are very similar to options in that they can be exercised to obtain common shares at a fixed price. The difference with warrants is that they have a time limit that can range from 2 years to even more than 6 years. These can be bought and sold or traded for common shares. This process does add dilution to the stock but it does provide the company with needed funds when they are first issued. Warrants are like little sweeteners that are added to those who put out the money on financing. It can be viewed as a risk enhancer or interest.
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Warrants when first issued will have a hold on them for a set period, say 6 months then after that they can be put out for sale to be traded. Each issue of warrants has an expirery date and an exercise price. An example would be a company has a stock price of $1.00. The warrants are say good for 5 years and have an exercise price of $3.00. If the stock reaches say $5.00 before the 5 years is up, these warrants will allow you to buy the above stock for $3.00 thereby giving a two dollar profit. The warrant itself maybe trading by this time for close to $4.00 so if you had bought them for $1.00 you would have gained $3.00 profit whereas with the common stock you would have paid $3.00 and only be up $2.00 at this point.
The above example is one of the pros with warrants. Now with the cons.
Due to the time limit as say the five years comes close the warrants loose there appeal if the stock price is not performing. Let's say the stock price that was $3.00 at the time of issue is now $1.00. Why buy the warrants that have a $1.00 exercise price with little time left when you can buy the common stock with unlimited time.
I would think if the stock had fallen to $1.00 the warrants would be trading for less than .10 cents by this time.
So you will see that there is great leverage both ways. It all depends on the stock, it's sector, and of course time. This is one case where timing is everything.
Junior Mining Stocks With Warrants
Below is a list of stocks that offer warrants that we feel are of good value. A part of that value lies in the fact the sometimes longer time periods are better. We also look into the viability of each company. Remember that trading in warrants does involve risk. Be sure to do your DD on each before trading.
Note. These prices are marked as of Oct. 27 2009.
- Breakwater - BWR.WT.A Exercise $0.12 April 2014
- Claude Res. - CRJ.WT Exercise $1.60 - May 2013
- ECU Silver - ECU.WT Exercise $0.95 Feb. 2014
- Endeavour Silver - EDR.WT Exercise $3.60 Oct. 2011
- First Majestic - FR.WT.B Exercise $3.50 Mar. 2011
- Terrane Metals - TRX.WT Exercise $0.85 June 2012
- US Silver - USA.WT Exercise $0.155 July 2014
- Western Coal WTN.WT Exercise $3.25 June 2012