With any stock, most of the significant price moves occur over very short time frames. Although a specific penny stock may trade within a small and predictable price range for months, those same shares may suddenly multiply in value over the course of only a few days or weeks.
In more extreme cases, the shares of a penny stock may trade sideways for as long as a year or more, only to quintuple within a few hours.
As an investor, the trick is to know when to own shares before they swing much higher within one of these trading windows, while not risking your capital during the extended periods of sideways trading.
More than 80 percent of the price moves in any penny stock occur within less than 20 percent of the time. You can really improve your investment results by observing and anticipating trading windows.
By keeping the trading window concept in mind, and paying attention to the price drivers, you can accomplish two things. First, you decrease your risk by having your money exposed in investments on the market for shorter periods. Second, you take advantage of the greater short-term moves, thus capitalizing from the greatest profits in the least amount of time.
You can be involved with those larger upside moves by paying extra attention to the following helpful indicators and events.
Press releases: Many companies put out press releases (PRs), to varying effect. Pay attention to how often a penny stock has issued PRs in the past, and how doing so influenced the share price. If you can anticipate when they may publish a new release, and predict what effect that may have on shares, you could increase your odds of timing upside moves.
Try to get invested in penny stocks that react very positively to PRs, and position yourself to be a shareholder when you expect any upcoming significant releases.
Financial results: All publicly traded companies (at least those traded on legitimate exchanges) are required to issue financial results regularly. You will know when the next quarterly results will be made public, and if you anticipate much improved numbers by using the tools detailed in this book, you can often get ahead of some excellent share price upside.
Watershed events: Often significant and material events occur that drive the price of the shares higher. For example, the government legalizes marijuana, or a tax is applied to foreign-made solar panels thus driving up demand for local producers, or a biotech company gets an important approval for their new drug. You can predict many of these situations, and investors who position themselves in the penny stock ahead of time can profit significantly.
Volume spikes: An increase in trading volume well above the average can often predict the beginning of a trading window. Just make sure that the increased trading isn’t based mainly on sellers, which would be demonstrated by the shares sinking lower. If the stock price remains flat or increases with increased trading activity, the shares may make a strong, short-term upside move.
The industry lead: Companies within the same industry often trade similarly. If most of the shares from a penny stock’s peer group spike higher, investors can often expect a similar price increase from the company they’re watching.