What are the best penny stock signals? Three ideas come to mind:
- Trading signals based on news
- Sophisticated TA signals with indicators
- Insider buying or selling
All of them suck. News are often the base for real investment decisions, but in the small cap markets things are different. It is difficult to trade the news of penny stocks, simply because there is no continuous stream of them. If finally something arrives on the wires, chances are that its source can be backtraced to the spammers and cheaters. Or worse, you believe in the con.
Technical analysis for penny stocks? Forget about it. The small cap markets are too illiquid and trading volume occurs sporadically so that chart formations are way too unreliable.
Insider trading is usually a good signal, but you won’t be able to detect or track it for microcap stocks. Essentially penny stocks are similarly difficult to trade as Forex, for other reasons, of course. But, there is hope…
All of the above can be simplified into one master signal. That signal is renewed interest in a stock and it can be detected by exploding trading volume after a relatively long downturn of the stock.
So, in a nutshell, the buying signal for penny stocks is a low price in the long-term chart combined with increasing volume and an upmoving price in the short-term chart.
The best way to get these signals is to have an honest source for them. There are various other criteria, but the main signal is indeed an exploding interest and a historically low price of the stock.
Honesty? Yes, there are always many stocks fulfilling the above signal criteria and you have to weed out the scams. Or, to put it a bit more harsh, your source of trading signals must not enrich their stock picks with their own pigs to tout.
All in all, this trading method is not exactly a precise one. It is statistics, but that doesn’t harm the idea, because all trading has to do with probabilities. You can’t circumvent it. So, why not admit it in the first place and use honest trading signals as trading ideas with a sound money management?
