Is penny stock trading more investing than anything else? As outlined here, the real penny stock trader uses statistical trading signals for penny stocks. This means our trader accepts that it is hard to predict small cap stocks, harder than most instruments of other financial markets. One could argue that this is investing and not trading.
The investor typically buys value. That is, he is trying to buy undervalued securities and hopes that the rest of the world shares his opinion about the undervaluation soon. A trader tries with timing or using signals to enter the market exactly when a price is poised to go in the right direction. Breakout trading, trend trading and trading the news are the most prominent cases of using some sort of trading indicator or signal.
Using indications for a penny stock trade like heightened activity and trading volume in the last days is a trading signal. It doesn’t matter that only in some cases the big price explosion or some sort of steady trend emerges and in most cases nothing happens. The same is true for trend trading of large stocks or indices. You never know what happens. Trading is a statistical business.
Penny stock trading by following signals is not investing. It is more speculation than investing, but because there is a signal, simply the new activity in a stock, it is even more trading.
Is there a penny stock investing method? A system for finding undervalued penny stocks and more or less buy and hold them? The system is there, I just told you the secret. It is nothing more than buying undervalued stocks and hold them until the undervaluation has changed into a overvaluation. The problem is of course that it is hard to estimate whether a tiny company’s stock is undervalued. Even if you are right, it can take a long time then for the rest of the market to share your insights.
The better penny stock operator is the trader. If you wait for some recent volume, price spike, or undercover buying activity, you have waited for the best penny stock signal there is. If you then pick only those stocks, that had much higher prices seen during their life time, your stock pick has statistical potential.
Still, finding worthwhile penny stock picks is the hard task of this penny signal system. But using recent activity as the master trading signal puts you far ahead of all those investors who want to judge a stock only statically. Find a good source for penny stock picks and trade probabilistically.