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Technical Indicators
Technical indicators are important. But are you feeling smart now? You know how to tell a market order from a limit order, and you know what a pump and dump scheme is and who’s behind them.
With the knowledge we’ve covered so far, you’re already 99% further ahead than most amateur traders who blindly follow the stock tips promoters shove down their throats!
But get ready, because things are about to get even more technical… It’s time to start talking about penny stock trading.
First of all, what are penny stocks? We’ve described them briefly earlier in this guide, but let’s get even more into the details. One thing you need to know is that penny stocks have few fundamentals—meaning that they have little-to-no revenues and they have little-to-no profits. Sometimes, they even have huge losses—they really just have no capital. That’s why they’re trading at $5 dollars or less a share and not hundreds of dollars like most blue chip companies.
Penny stock companies’ prices are so low because they have few products—they’re very tiny operations. That makes it easy for them to fail and hard for them to succeed. The thing about a stock’s price is that it’s a good indicator of a company’s odds of succeeding. When a stock like Apple is trading at $130 dollars a share, they’re obviously succeeding. But when a tiny company is trading at a $1 dollar, the odds are they’re not going to succeed—they’re priced low because no one wants the stock. They’re longshots.
As a result, penny stocks offer a high risk in exchange for a potentially high reward. That’s what it comes down to. If you’re an investor, this doesn’t apply to pennystocking. It’s not necessarily high risk because you’re not in a stock for very long. If you were to hold these stocks for a year, you’d have tons of different trading days where something bad can happen. But if you’re in a stock for a few minutes—or even just a few hours—there’s a little risk that something bad could happen, but there’s not as much risk as holding the stock over a longer period of time.
