Penny Stock Volatility — Volatility & Penny Stocks
Penny stock volatility is a term most people never use. The biggest reason people don’t use it is because they don’t invest in penny stocks. On the other hand, penny stock investors are very familiar with this term.
The penny stock market experiences heavy volatility. Probably the biggest explanation for this volatility is the low price of the stocks traded on this market. Literally, they sell for pennies. It is also not unusual to see stocks on this market sell for less than a penny per share.
An excellent explanation of penny stock volatility was written by the Bowser Report’s Thomas Rice titled, Penny Stock Volatility… Friend or Foe? It can be found at:
In this article, Rice asks, “What is volatility?” He then gives this answer:
“According to the convenient investopedia.com, this investment term refers to the variation in price for a particular company.”
The phrase ‘variation in price’ merely means a stock will rise in price and a stock will go down in price. In other words, stock prices rise and fall. What makes them rise and fall is always the 64 thousand dollar question.
On the Big Board, that is the New York Stock Exchange (NYSE), and the American Stock Exchange (AMEX), the price volatility is almost always related to an action by the underlying issue. For example, the company is expected to announce a $2.00 per share earnings but only announces a $1.89 per share earnings.
This announcement will almost always precipitate a downward movement for that particular issue. Sometimes it won’t scale downward because the explanation for the lower than expected earnings report has a solid fundamental reason.
With penny stocks, the underlying issue very rarely has earnings to announce. The movement is almost totally due to several factors. Number one, the amount of public relations associated with the issue. If the released information is believable and makes sense, this penny stock volatility will be upwards.
The company may pay a press release expert to draft a press release talking about future earnings or future discoveries for their core product or expected earnings or expected discoveries for their core product. This too may generate an upward trend which is part of penny stock volatility.
With penny stock volatility happening as quickly as it does, the upward price trend is usually short lived. It can be as short as several minutes after the market opens. The idea with penny stocks is to take advantage of this volatility and not hold the issue for too long a period of time.
Penny stock volatility also means the stock has a downward trend. As just mentioned, a penny stock can open and run up for a period of time and then suddenly reverse direction and close at a lower price than it opened.
In the article by Rice, he shows several charts and gives an explanation of the volatility associated with each issue. You can see penny stock volatility in the charts. The Bowser Report is a monthly financial newsletter that specializes in small stocks trading for $3 share or less.
They have experience in penny stock volatility given that is their arena. Of course this arena also includes mini-cap and mid-cap stocks. They too experience volatility. Anyone interested in trading penny stocks should not be surprised that such a thing as penny stock volatility exists. In fact, if you understand it, you can make thousands of dollars in this market.
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