Different investors base trades on different factors and styles. There are several types of trading styles which include position trading, swing trading, day trading, scalp trading and trading based on penny stock news.
Presently, algorithmic trading controls the daily volume seen in the stock market. The several news reading algorithms which react to the news immediately, which in turn generates increased volatility to that company’s share price, especially for a penny stock.
A trader that relies on technical indicators dismisses the news with the idea that it is already part of its share price. Furthermore, they feel that the price action will determine where it will go. The question here is how important should news be when trading penny stocks?
Is Penny Stock News Important For Traders?
For example, let’s say the stock price of company XYZ has established support at $1. If it were to drop back to that level, a trader relying on technical indicators would likely purchase some shares. If the stock was trading at $2 and dropped to $1, where it has shown support, the trader will likely go long. But then the stock drops to $0.25 following news the company is under investigation. This would be a situation where knowing about the news is an important aspect of trading. Technical analysis is thrown out the window in this case.
Here’s another example. If your trade style uses a mean reversion strategy, and company XYZ is down $2 but typically trades around $1, one might decide to buy shares. But, if you were aware of the news, earnings were just announced, and this is not unusual volatility. This is another example of how news can assist a trader to make better decisions when trading.
Technical Trading Still Helps
To be clear, using technical analysis can be very valuable. But it is also important to know what is fundamentally going on with a company. Overanalyzing the news or letting your opinion of it can get in the way and reflect negatively in your trading. We arent’ suggesting to trade based on a company’s news alone. Although some trader