How to Trade Penny Stocks:
Fundamentals play a small role in trading Penny Stocks, but for the most part – they’re unknown. Stocks that trade on OTC and pink sheets don’t have the same SEC reporting requirements as those trading on major exchanges (NASDAQ, NYSE, AMEX, etc.), so these companies aren’t legally required to share such information. In any case, most of the fundamentals would be subpar even if they were shared. Penny stocks often have unproven business models, modest revenues at best, and sometimes operate at a loss. Overall, they’re penny stocks for a reason.
So what do penny stock traders focus on? Answer: Technical Analysis. Focusing on the technicals means monitoring price action and chart patterns. Are there spikes in volume at certain price levels? Is the stock following a clear trend? The bottom line is that there are still opportunities to profit with penny stocks on a short-term basis even though the company itself might be absolute garbage. Real-world success isn’t necessarily required in order for you to make money on a penny stock. It’s only the expectation of success, or hype, that matters. Pairing technical analysis concepts with strong catalysts can result in highly profitable penny stock plays.