Is speculating with penny stocks investing? The typical investor would probably answer no. After all investors are used to scan fundamental data and make a thorough analysis that in turn enables them to draw wise conclusions. Interestingly the outcome is still equal to the result of flipping a coin. The probability that your investment will yield a gain is around fifty percent!
Penny stocks move around rather drastically. They are able to jump hundred or even thousand percent during night and they can also go next to zero while you sleep. One thing is for sure, they go up and down and that alone should tell the risk averse investor something. Picking a penny stock blindly and selling it the same way will produce the same random result real investors achieve with real stocks…
There is no safe investment and a large company with tons of fundamental data doesn’t change that to your favor. So, why not go where the volatility is and enjoy the asymmetry of possible gain to maximal loss?
Trading penny stocks is not that difficult. Just accept that you aren’t in control anyway. Trading is a probabilistic game, a numbers game. But thinking that thorough analysis of fundamental numbers will change that is an illusion.
How to trade or invest in penny stocks then? One way is to make a preselection and concentrate on stocks that already have shown that they are able to move. While in the world of real stocks earnings and revenues may count, in the penny stock market it is the volatility.
Should a stock’s price be high or low compared to its history? Here we have the biggest difference between large and small stocks. Large stocks and even more so growth stocks should trade near a high. Die hard investors will now disagree vehemently. Well, we accept your dissent as such, but… you are probably reading a trend trading site, because your subconscious tells you that something is wrong with your investing strategy.
So, for large stocks and especially growth stocks we demand a trend and therefore a price near a high. For penny stocks things are different. Technical analysis is difficult if not impossible for them. Prices are simply jumping around too much.
The solution is even more simple. A penny stock that is far away from its historic highs and that shows renewed trading activity is interesting. It has price potential. Moreover, in general the upward potential is some hundred percent whereas the maximal loss is limited to a fraction of that. This is the gain-loss asymmetry.
Both things come together and that is enough to bend the odds a little to your favor. Combine that with a penny stock newsletter and some robust money management and you may have your semiprivate cash machine.
Important for a stock picking service is honesty. Knowledge of secrets or any other informational edge isn’t existing anyway. Find one with the right system – that is penny stocks way below their historic high and renewed investor interest – and see if you can trust them. Or just try it.