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Blog : Penny Stock Dips
March 25th, 2009
Sometimes a penny stock drops sharply by 10% to 30% (or more in some cases), but the dip is based simply on a temporary lack of buying demand (or a sudden increase in the amount of selling volume). Penny stocks are thinly traded, and are subject to suffering price Dips.
A true Dip is temporary in nature, often disappearing with hours or a couple of days at most, and represents a tremendous buying opportunity.
If the Dip is not based on a deeper problem, it can be an excellent time to accumulate shares. A true Dip is temporary, and isn't based on fundamental factors. For example, the share price drops 30% on light volume for a day, but there is no reason for the sudden decline besides a sudden and temporary drought of buy orders. Investors who buy into these Dips are often looking at profits of 10% to 20% within a matter of days, or hours.
Generally, the trading volume will be very light at the time of the Dip, further solidifying the idea that the price slide was brought on by a lack of activity, as opposed to a panicked sell-off.
Since they are so unpredictable and short-lived, the way to profit from a Dip is to position yourself ahead of time. Having a standing limit order at $0.30 for a stock trading in a range from $0.45 to $0.80 sets you up to benefit any time the underlying stock Dips.
Some stocks Dip more than others, and if you are interested in profiting from this technical pattern, look for those shares that will present you more frequent opportunities.
It's also a good idea to place low-ball buy orders on shares of companies that you already own. Picking up some stock at less expensive prices brings your average cost down. However, make sure that the price drop is truly a Dip and not a downtrend or Collapse, because in such an event you'd just be picking up more shares as the stock sinks.
