I was down $2,700 my first year of trading.
Not a great start.
My mentor, Tim Sykes, told me something early in my trading career that I wrote down and never forgot.
He said the market isn’t random. It just looks that way until you understand what’s really happening underneath the surface.
Once I saw it, I couldn’t unsee it. And it’s been behind some of the biggest wins of my career ever since.
The 7-Step Pennystocking Framework
Think of this as a pattern of patterns.
It’s not an exact science. Markets are never exact. But once you understand what’s happening underneath a big move, you start seeing it everywhere…In penny stocks, small caps, OTCs, even whole sectors.
Here’s how it plays out…
Step 1: The Pre-Pump
Before the big move, there’s usually a quiet buildup, a thesis developing.
A sector or stock that hasn’t moved yet but has every reason to. This is where patience pays off.
I used this step with marijuana stocks heading into early 2021. Biden won the election, and I knew weed stocks would spike. I bought a basket of them and waited.
Nearly a month later, the sector exploded. That’s step one done right.
Step 2: The Ramp
The move starts to accelerate. Volume picks up. Social media chatter builds. There’s consolidation and then a technical breakout.
This is where momentum traders start paying attention.
Step 3: The Supernova
This is the big move. The explosive run that gets everyone’s attention.
It’s the most rewarding time to be long, and the most dangerous. The higher a supernova goes, the more overextended it gets. You have to know when to ride it and when to step off.
Experience is everything here.
Step 4: The Cliff Dive
What goes up must come down.
The promotion stops, the hype fades, and the bottom falls out. Fast.
This is where undisciplined traders get crushed holding positions they should have already exited.
Step 5: The Dip Buy
This is one of my favorites.
After the cliff dive, panic sets in. Stop losses get triggered. A wave of selling hits, and then the bounce comes.
Dip buyers who did their homework step in, and the stock can rip 50% or more in a matter of hours.
Preparation is everything here. You have to know your levels before the panic hits.
Step 6: The Dead Pump Bounce
After the dip buy, there’s often another smaller bounce.
Less range, less excitement, but still tradeable if you know what you’re looking at.
Step 7: The Long Kiss Goodnight
The stock slowly fades. The promotion is dead. The hype is gone.
This is where traders who held too long live, and where those with discipline have long since moved on.
How I Use It
I studied this framework instead of just memorizing it. That’s what separates the pros from the amateurs.
The framework isn’t a rigid checklist. It’s a way of thinking about where a stock is in its life cycle at any given moment.
When I look at a chart now, I’m not just seeing price action. I’m asking, where is this stock in the framework?
Is it ramping toward a supernova?
Is it in a post-cliff-dive panic that’s setting up a dip buy?
Is there a dead pump bounce coming that I can position for?
That question changes everything.
I’ve put in the work to understand every step. Because the more of it you can read, the more opportunities you can find, regardless of where the market is or what a stock is doing.
That’s what this game is really about…
Not finding the one perfect setup. Building a deep enough understanding of how stocks move so that you can find opportunity in any part of the cycle.
The framework is the foundation of that understanding.
Study it. Not just the patterns, but the psychology behind them.
Understand why each step happens, what’s driving the emotions of the traders on both sides, and what it means for what comes next.
Do that, and the market starts to look a lot less random.
It starts to look like a map.
– Jack Kellogg
