Penny stocks have their peaks and valleys like all major stocks. The difference is that stocks on established exchanges usually move in one direction for the long term. As an example, they can swing in price from $30 to $40 but eventually will either rise above $40 or head below $30. A penny stock can repeat the cycle numerous times without breaking out of its annual high and low. The reason this occurs is because penny stocks have large swings and when they have profits of 50% or 100%, investors figure that if they can make money at this point, why risk their money by holding a stock that could very easily give back 50% to 100% of its value in an hour.
Every time the stock reaches its high there will be heavy selling from profit takers and investors who do not think that the stock can break its high. The selling drives down the price until the stock reaches its low and investors consider it a bargain. Once the stock is at its low, penny stock investors rationalize that it is a good buy since it cannot move any lower. They look at the difference in price between the high and the low and encouraged by the upside potential, they begin to start buying up the stock. Other investors see the buying and the price increase that the buying causes and they decide to buy. They look at the high and realize that the stock has plenty of room to go up and continue buying it until the price is near the high. At the point that the stock reaches its high, investors start selling again, repeating the process. The stock needs to have good news to encourage investors to buy in the first place, but after the investors have bought the stock, they will use the high and low for the year to determine a good entry and exit point.
If you want to take advantage of this opportunity you should look for penny stocks that have been trading at their 52-week low. You want to make sure that penny stock is still not in the process of dropping so make sure to buy a stock that has been sitting at the low for a few weeks or so. Keep an eye on the company for any new developments that could trigger investors to start buying the stock. If there is a positive development you will benefit greatly from having bought the now hot penny stock at its low. And if the news does not move the stock, you could probably sell that stock at or near the same price of where you bought in at.
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StockProfessors.com is a website that profiles stocks of interest. We are not licensed brokers or financial consultants. Please be advised that the information contained may or may not be complete and is solely for informational purposes only. This is not to be construed as an offer to sell, hold or the solicitation of an offer to buy. Investors are encouraged to seek opinions by their registered brokers or financial advisors after extensive due diligence is performed.
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