Can Artificial Intelligence Accurately Pick Penny Stocks?
Open AI’s ChatGPT has exploded in popularity like heavily shorted, low-float penny stocks. Are you wondering if there’s a ChatGPT stock? The answer is no; there is no ChatGPT stock ticker as it’s a private company. But other public companies like Microsoft (NASDAQ: MSFT) have exposure to the platform through strategic investments. Other companies like Alphabet (NASDAQ: GOOGL), Alibaba (NYSE: BABA), and Bidu (NASDAQ: BIDU) are developing their own versions of the chatbot.
You might think asking a platform like ChatGPT would give you the “secret” to finding penny stocks. It’s obvious, right? Well, we asked the popular AI chatbot to provide us with exactly that, and here’s what happened:
Question: What are the best penny stocks to buy?
ChatGPT Response: As an AI language model, I don’t have the ability to predict future stock market performance or provide investment advice. Additionally, investing in penny stocks can be risky, as these stocks are often highly speculative and may be subject to market volatility, limited liquidity, and a higher risk of fraud.
So that question didn’t quite hit the mark that I’m sure you were hoping for. But that doesn’t mean you still can’t use platforms like ChatGPT to find strategies to make money with penny stocks. Let’s go through some of the prompts and responses. Then you can see if they make sense to implement in your trading profile.
ChatGPT Prompts For Stock Trading
How To Find Penny Stocks With Unusual Activity
What should you scan for to find penny stocks with unusual activity?
There are several factors you can look for to identify penny stocks with unusual activity:
- Volume: Increased trading volume can indicate a higher level of interest in a stock, which may be due to positive news or rumors.
- Price Changes: Significant price swings, especially when accompanied by high trading volume, can indicate unusual activity in a penny stock.
- News and Press Releases: Keep an eye out for news and press releases from the company, as these can often have a significant impact on the stock price.
- Social Media: Monitoring social media and online forums can provide insight into market sentiment and can give early warning of potential positive or negative news.
- Analyst Recommendations: Pay attention to analyst recommendations, especially if they are unusual or unexpected.
The Best Brokers To Use To Buy Penny Stocks
What are the best brokers for trading penny stocks?
There are several online brokers that offer services for trading penny stocks. Some of the popular ones include:
- Robinhood: A popular choice among young investors, Robinhood is known for its commission-free trading and user-friendly interface.
- TD Ameritrade: TD Ameritrade offers a comprehensive platform for trading a wide variety of securities, including penny stocks. They have advanced trading tools and a large selection of research resources.
- E-Trade: E-Trade is another broker that offers a wide range of trading options, including penny stocks. They have a user-friendly platform and offer research and educational resources to help you make informed investment decisions.
- Interactive Brokers: Interactive Brokers is a more advanced platform for experienced traders, offering a wide range of trading tools and resources.
The AI chatbot also said, “When choosing a broker for trading penny stocks, it’s important to consider factors such as commissions, platform stability, and customer support. Additionally, it’s crucial to conduct thorough research and due diligence on any company you are considering investing in, regardless of the broker you use.”
So far, so good. Now let’s try some advanced technical questions.
Finding Penny Stocks To Buy Using Technical Indicators
What are the best chart patterns for finding the best penny stocks to buy?
There are several technical chart patterns that traders and investors use to help identify potential investment opportunities in penny stocks. Here are a few of the most commonly used chart patterns:
- Breakout: A breakout occurs when a stock’s price moves above or below a key resistance or support level, indicating a potential change in trend.
- Cup and Handle: The cup and handle pattern is a bullish reversal pattern that forms after a downtrend. It is characterized by a “cup” shape followed by a period of consolidation, or “handle,” before the stock price resumes its upward trend.
- Flag and Pennant: The flag and pennant patterns are similar to the cup and handle pattern, but are formed after an uptrend instead of a downtrend. They are considered bullish continuation patterns, indicating that the stock price is likely to continue its upward trend.
- Head and Shoulders: The head and shoulders pattern is a bearish reversal pattern that forms after an uptrend. It is characterized by a peak, or “head,” followed by two lower peaks, or “shoulders,” before the stock price resumes its downward trend.
- Double Bottom: The double bottom pattern is a bullish reversal pattern that forms after a downtrend. It is characterized by two bottoms at approximately the same price level before the stock price resumes its upward trend.
Penny Stock “Buy Signals”
What technical indicators should be used to identify buy signals for penny stocks?
Technical indicators can be used to help identify potential buy signals for penny stocks, but it’s important to note that they are not a guarantee of future performance and should be used in conjunction with other analysis methods such as fundamental analysis and chart analysis. Here are a few technical indicators that traders and investors commonly use to identify buy signals:
- Moving Averages: Moving averages provide a smooth representation of a stock’s price trend by averaging its price over a specific period. A stock price crossing above its moving average can be considered a bullish signal.
- Relative Strength Index (RSI): The RSI is a momentum indicator that measures whether a stock is overbought or oversold. A reading above 70 is considered overbought and may indicate a potential sell signal, while a reading below 30 is considered oversold and may indicate a potential buy signal.
- Stochastic Oscillator: The stochastic oscillator is another momentum indicator that measures whether a stock is overbought or oversold. A reading above 80 is considered overbought and may indicate a potential sell signal, while a reading below 20 is considered oversold and may indicate a potential buy signal.
- Bollinger Bands: Bollinger Bands are a volatility indicator that uses a moving average and standard deviation to create upper and lower bands. A stock price crossing the upper band may indicate a potential sell signal, while a stock price crossing the lower band may indicate a potential buy signal.
- MACD (Moving Average Convergence Divergence): The MACD is a trend-following momentum indicator that uses two moving averages to identify potential buy or sell signals. A crossover of the MACD line above the signal line can be considered a bullish signal, while a crossover of the MACD line below the signal line can be considered a bearish signal.
Can ChatGPT Give You Penny Stock Picks?
As you can see, ChatGPT can’t give you stock picks. But it can give you some basic information to formulate a trading strategy. None of the information the chatbot gave was groundbreaking by any stretch. If you’re using AI platforms like ChatGPT to “learn”, you may want to cross-reference that AI information.
In one instance, we asked it to define certain chart patterns and it did so with the exact opposite of what the definition should have been. Is ChatGPT useful? In my opinion, yes. But if you’re new to trading, you may not know that at first glance. So keep that in mind when using new AI tech that is taking news headlines by storm in 2023. At the end of the day, the more data you have, the better.