Who doesn’t like good news?
Whether we like it or not, the news is a key driving force behind the performance of a stock. Like anything else, penny stock prices and momentum usually get quickly affected by hype and breaking news — which could either be positive or negative.
For example, there could be a major advancement in the company’s process or a game-changing acquisition — which is expected to positively impact growth.
Or the company’s Management will try to fix a bad situation by sealing game-changing deals. And when the positive news gets released, the stock price soars!
On the other hand, a scandal pops up or some bad news gets out, before you blink, the stock price gets slashed.
When I’m looking for potential penny stocks to trade, I keep my eyes out for positive news, financial reports, or reports speculating an increase in the value of the company.
High Relative Volume
The volume of a stock is used to measure the number of shares that are sold or bought at a specific time. And in my opinion, it is one of the most important things to look out for when trying to pick a penny stock to trade.
The last thing you want is dumping your money in a stock and then realizing not many people are interested in it.
That’s a one-way ticket to ruining your account.
One of the best methods to find stocks that have high volatility is by looking at its relative volume. This is basically comparing trading volume at any time against its trading volume in the past.
For example, last week I mentioned I had my eyes on this penny stock: ABOS
Before putting my money on it, I always check the longer-term chart to get an idea of volume history and assess whether it’s in an uptrend or a downtrend – that way I know if interest in a stock is rising and if new price levels are getting accepted by an increasing number of people.
This helps me to spot any unusual trading activity that could indicate an opportunity.
Keep in mind that if a stock is trending upwards with high relative volume — that is a good sign that the momentum will continue.
On the flip side, if the relative volume keeps reducing — regardless of an increasing price — I take that as an indicator of slowed-down momentum (and a reversal might just be around the corner).
If the volume is low, please avoid the stock!
Another piece of information I like to pay close attention to before I pick any stock is float.
First off — What’s a Stock Float and why is it Important?
A stock’s float (also called free float) is the number of shares available for trading to the general public.
Because floating stocks are the number of shares available to the public for trading, they’re subject to fluctuations over time and are influenced by various factors.
For example, a stock float may increase when major shareholders sell off their shares or if the company issues new shares in order to raise capital. On the flip side, it can decrease if major shareholders buy up shares or if there are few investors.
Stock float is typically classified as either;
High float: A stock float is considered high if the majority of its total shares are available for trading. Because the supply is high, this means it’s easier for folks to buy these stocks.
Low float: When a small percentage of shares are available for public trade, it’s considered a low float. In this case, the supply of shares is low.
In my experience, a high float stock usually requires a lot more volume to move (compared to a low float) because there isn’t a lot of demand.
Ideally, I like to look out for low float stocks — with under 75 million shares. This is a good indicator that increased demand could drive the price up rapidly.