Above the Green Line -01
  • Market Insights
        • Commentary
          • Daily
          • Weekly
        • BUY / SELL SIGNALS
          • Trade Posts
          • Recent Trade Alerts
          • Recent Day Trades
        • BLOGROLL
          • Dividend Growth Blog
          • ETF Sector Blog
          • Dow Dogs
          • TPOW Blog
  • Strategies
        • SWING TRADING
          • Current Positions
          • Watchlists
          • Closed Positions
          • Candidates - TOP 100
          • Specialty Stocks
        • WEEKLY STOCK PICK
          • TPOW Charts
          • TPOW Performance
          • TPOW Strategy Guide
          • TPOW Performance Dashboard
        • DAY TRADING
          • Watch List
        • ATGL DASHBOARD
        • ETF STRATEGIES
          • ETF Sector Rotation
          • ETF Sector Portfolio
        • DIVIDEND GROWTH
          • Dividend Growth Portfolio
          • Dividend Calendar
        • DOGS OF THE DOW
          • Dogs of the Dow Portfolio
          • DOW 5 Portfolio
  • Markets
        • US MARKET
          • Commodities
          • Energy
          • Precious Metals
          • Volatility
        • GLOBAL MARKETS
          • Market Indices
          • Economic Calendar
          • FOREX Heat Map
          • FOREX Cross Rates
          • Crypto Currency Market
  • Investing
    • Discord Community
    • Dashboard
  • Resources
        • ARTICLES
          • Dividend Growth Model Articles
          • ETF Articles
          • Investment Strategies Articles
          • Market and Economic Insights
          • Stock Trade Articles
          • Stock Reviews
        • TOOLS
          • Stock Scanners
          • Charting Software
          • Brokerage Firms
        • STOCK CHARTS
          • Key Components
          • Reading Charts
          • Drawing Stock Charts
          • Identifying Trends
        • RETIREMENT PLANNING
  • About
    • Contact Us
    • How to Win
    • #1 At Stockcharts
    • Disclaimer
    • FAQ
  • Log In
  • Subscribe

August 3, 2020

Penny Stocks

Penny Stocks

Source

What is a Penny Stock?

A penny stock is the stock of a small, young company that is typically valued at less than $5.00 a share. Some penny stocks trade on large stock exchanges, yet most trade through over the counter (OTC) transactions. Due to the size of the company and the value of penny stocks, they normally trade with less frequency and thus tend to have lower liquidity. Consequently, it can be difficult for investors to sell their shares.

How to Pick a Successful Penny Stock

A penny stock’s low liquidity and high risk can cause sufficient losses for their investors. However, there are guidelines as to how to choose the right penny stock and potentially profit off its price movements. First, a potential penny stock investor should take a close look at the stock’s earnings. If a penny stock has growth that comes close to its 52-week high, it is probably more reliable than others. Secondly, it is important not to base your decisions off of penny stock newsletters. Oftentimes, penny stock newsletters have conflicts of interest that are available to read under their disclosure notice mandated by the SEC. Third, look for penny stocks with high trading volumes. The higher the trading volume, the healthier the penny stock. The last most defining rule is to maintain patience. Patience is equally important before purchasing as it is during holding. It is recommended by many experts to not buy what may seem to be a healthy penny stock right away. Instead, track its movements and how it trades before opting in.

Risks Involved

Penny stocks do have advantages for both new companies and investors. However, investors may also have negative experiences with penny stocks. Therefore, it is important to examine the risks involved. The primary reason that investments in penny stocks fail is that generally there is not enough information available to the investor about the company. Furthermore, the information that is available may not be reliable. As mentioned above, many penny stock newsletters have conflicts of interest when presenting what they may deem as profitable investments. In addition to the lack of information, penny stocks are also often traded on different platforms than larger stocks. Penny stocks mostly trade OTC and they may also be listed on “pink sheets”. Companies listed on “pink sheets” do not have to file with the SEC. Both stocks traded OTC and listed on “pink sheets” do not have to adhere to minimum requirements in order to remain on the exchange and therefore carry a degree of risk. Lastly, penny stocks generally have low liquidity and as such can become difficult for investors to sell. Perhaps the danger of low liquidity levels lies in the opportunity for traders to manipulate the prices of their stocks. Here’s how it works: when a penny stock is talked up, large amounts of the stock are purchased; then when investors purchase the stock, the scammers sell all of their shares. This means the penny stocks are subjected to fraud.

New Fads

Penny stocks have recently become popular for “rookie investors” or investors that trade on platforms such as Robinhood. Platforms, like Robinhood, that provide rookie investors a place to experiment can become quite problematic for prominent brokerage platforms that more experienced investors flock to. This is because the investors on Robinhood can buy and sell with ease and no direction and, consequently, oftentimes work against what Wall Street experts advise. For example, a lot of attention was given to a buying spree within the Robinhood community during the months of February and March. Prominent platforms sold in min-February and continue to sell today. What was the result? The community within Robinhood ate up stocks during February and March, some investors purchasing some of the best-performing stocks of the economic rebound. Young investors were profiting while Wall Street veterans laid low. Experienced investors reportedly found themselves frustrated. Not only did they miss out on the S&P’s 40% rally, but the inverse relationship between Wall Street experts and Robinhood amateurs has the capacity to affect the market. While most experts do not believe platforms such as Robinhood have deeply affected the overall state of the market, they do believe that certain slices of the market have changed. One of these such slices contains penny stocks. Investors who utilize Robinhood have more access to penny stocks. Many members of the community purchased low-priced stocks from many companies, even those who had declared bankruptcy. This strategy has worked for the Robinhood community thus far as the smallest 25 stocks of the Russell 2000 have averaged a 124% return since March; that’s in contrast to a 28% return on the biggest 25. Nevertheless, small stock prices may be distorted due to the large engagement from the Robinhood community. Acknowledging Robinhood’s impact on the market is important for investors who desire penny stocks. There is something to be said about the general lack of expertise associated, yet also something to be said for their incredible gains. If you’re thinking about getting into penny stocks, keep a close eye on Robinhood users’ impact.

Conclusion

Penny stocks are a necessary component of the economy as they help small businesses gain access to public funding. In addition, penny stocks have been successful for many investors as their low starting prices allow for significant appreciation in the future. Nevertheless, there are risks involved with owning penny stocks. They lack liquidity, there’s not a lot of information available about them, and the probability of fraud associated with penny stocks is much higher than other investments. However, the risks should not steer all investors away from penny stocks. Many investors have become very successful by betting on a small company’s future. To become profitable, an investor simply needs patience and the ability to think for themselves, not what the news may be saying.

Above the Green Line Watch List – Penny Stocks



Related Articles

Mcclellan Oscillator

How to Use the McClellan Oscillator for Breadth-Based Trading Signals

Market breadth analysis offers traders a deeper understanding of the underlying market strength beyond simple price movements. The McClellan Oscillator ...
Read More
Keltner Channels

What Are Keltner Channels? Formula, Strategies & Comparison

Keltner Channels help traders visualize price movements within dynamic boundaries that adjust based on market volatility. Unlike static support and ...
Read More
Trading Systems

Trading Systems 101: Building and Optimizing Your Own Strategy

In a world of constant market noise and emotional impulses, the most successful traders often share a common secret: they ...
Read More
High Frequency Trading

What Is HFT? A Guide to High Frequency Trading for Retail Traders

In today’s stock market, prices can flicker and change in the blink of an eye. For retail investors, this rapid ...
Read More
Flash Crash

How Flash Crashes Happen – and What Traders Can Learn From Them

In the span of minutes, financial markets can descend into chaos. Trillions of dollars in value can evaporate, only to ...
Read More
Dead Cat Bounce

Dead Cat Bounce in Technical Analysis: Spotting the Bear Trap

A dead cat bounce represents one of the most deceptive phenomena in financial markets, capable of misleading even experienced traders ...
Read More

Subscribe to Our Newsletter

AGL Logo

Get our eBook Now!

Candlestick - A Swing Traders Friend

We don’t spam! Read our privacy policy for more info.

You’ve been successfully subscribed to our newsletter!

Voted #1 at Stock Charts

SH Chart
Inverse S&P 500 Fund (SH) will have a Money Wave Buy today.

Help Us Help Animals

Help Us Help Animals

Recent Comments

  • Spot Better Trading Signals With the McClelland Oscillator on Breakout Trading Strategy: How to Identify and Profit from Market Breakouts
  • Spot Better Trading Signals With the McClelland Oscillator on Best Technical Indicators for Day Trading Success
  • How Flash Crashes Really Happen (and What Traders Should Do About Them) on Long-Term vs. Short-Term Investment Strategies.
  • How Flash Crashes Really Happen (and What Traders Should Do About Them) on Best Technical Indicators for Day Trading Success
  • What Is a Calendar Spread and How to Trade It on IWM vs SPY: An ETF Comparison Analysis

Become a Green Liner!
Become a Green Liner!

Help me make more Money in the Stock Market.

ON ATGL

  • DashBoard
  • Weekly Commentary
  • Daily Buy / Sell Signals
  • Day Trade Setup
  • Trading Rooms

Design & Develop By Pixelvect

STRATEGIES

  • Swing Trading
  • ATGL Pick of the Week
  • Dividend Growth
  • ETF Sector Rotation
  • Dogs of the Dow

HELP

  • ATGL Trading Rules
  • FAQ
  • Account Maintenance
  • Contact US
  • Join

FOLLOW US

Instagram Linkedin Twitter Facebook

© COPYRIGHT 2024 · ABOVETHEGREENLINE.COM · ALL RIGHTS RESERVED · PRIVACY · TERMS · CONTACT · WATCHLIST · CURRENT