A simple penny stock can be very complex. Investors need to know a good amount of information and be able to efficiently handle risk in order to figure out the best way to make money with a penny stock investment. But when it comes to these low-priced shares, investors should also be aware of what drives the prices of these stocks in both directions.
Many things that influence penny stocks actually have more to do with what is happening outside of the public markets. What are we talking about? While the things drive prices of penny stocks may be overlooked by most, we want to uncover the things that you like a penny stock trader should know about.
Technical Trading & Penny Stocks
In certain cases, there are too many buyers compared to the number of sellers or there is too much selling compared to buying. These imbalances in the technical trading of penny stocks. Where a stock like Apple or Amazon may move a percentage point or two when there is a trading imbalance, penny stocks will likely see volatile swings of 50% or more. The reason for this is due to the lower trading volumes of penny stocks.
Corporate Developments
Aside from the penny stock market, corporate developments can help fuel the trading of specific penny stocks. For example, when a company sees increases in revenue or earnings, this is a favorable event and could bring investors to buy more stock. Considering the Technical Trading above, the higher buying volume could send share prices skyrocketing. Similarly, a negative announcement like a plant closing or management team member departing could have the opposite impact on share prices.
Industry or Market Growth
This could be one of the more familiar topics. When a particular industry begins to see positive or negative buying, many stocks in that niche will also reflect the move. We have most recently seen this when it comes to blockchain stocks, cryptocurrency stocks, and marijuana stocks. Hype can play a big part in these big moves. When bitcoin prices were soaring, stocks in the sector followed suit and when bitcoin dropped, so did stock prices. The same holds true for oil and gas stocks, chip stocks, and even shipping stocks.
Media FOMO
The media can also play a big role in driving the price of penny stocks. Similar to the industry hype, the media adds to the excitement. The FOMO or Fear Of Missing Out becomes further magnified. Essentially when investors see “analysts” and “finance gurus” getting excited, it gives these investors a reason to be excited as well (in their own mind). It’s important to note that media hype just like any other hype is, in the end, hype and as an investor, you need to make sure you are able to take out emotion to make the best decisions on what penny stocks to make money with.
