Trigger-Happy Jack

When the rubber hits the road, only the execution of the trade will matter when investing in penny stocks. Throw away all the research, the luck, the confirmation, and the whole shebang. If you don’t buy in at the right time or sell when the harvest is plentiful, you’re setting yourself up for a painful experience. Particularly noticeable in the pink land of the lower exchanges, entry and exit points require both a form of patience and resolve for the best possible outcome.

Penny stocks are inherently cheap. Yet ironically they typically trade on the same interval scale as those of the upper exchanges. Investors hate to trade on subpenny intervals (ie. $0.1234) when they’re not coerced to do so (they are forced to do so when a stock drops below a penny). Unfortunately, this also adds to the volatility of the trades. For example, an 8-cent stock will typically jump on a 12.5% gain or loss on a single tick.

Because of this, following a company’s trading patterns is a vital part of investing on the lower exchanges.

Does the company have low volume?

Is the company trading sideways or does it sink and rise regularly?

How does the stock react to certain news?

We’ll go into more of this another day, but in the mean time it is always useful to get a firm understanding of how people react in various market situations. I say this because down here on the lower exchanges, your peers are typically the ones that are able to fluctuate the share price. Here are just two noticeable trends to bear in mind when it comes to executing the trade:

1) People like to trade heavily in the morning on news -- It’s very common to have morning spikes on the release of news. If you miss the spike, but feel the trend will continue, have a little patience as the price will typically retract a bit within an hour as people profit-take or panic a little less after coming to their senses

2) If a deadline approaches, a trend will not continue up to that deadline – If a company is undervalued, do not expect it to obtain a representation of its expected value prior to hitting a deadline. Even while there is momentum, this will typically cut short a few days prior to the deadline and begin to trade sideways or sink.