Penny Stocks and Micro Cap stocks: Finding the Bottoms
Trading low priced Micro cap and penny stocks is a "High Risk
High Reward" style of trading. I have found that one of the most
profitable ways to trade these stocks is by finding the bottoms.
If you are correct and find the bottom, the stock has nowhere to
go but up. If you are wrong and miss the bottom, no one wants to
"catch a falling knife".
Over the years I have developed very successful strategies to
find bottoming stocks, I have taken these strategies and created
bottompicks. When searching for bottoming stocks, the first key
is to understand what caused the stock to drop in the first
place. The second key is to find out if there is any reason this
stock should go back up in price. This can only be done with a
complete understanding of technical analysis and the "due
diligence" of fundamental analysis.
When a stock is bottoming, it has dropped to a new recent low.
This could be as dramatic as the lowest price in years or
something as simple as a 50% pullback from recent highs. At this
point the stock may begin to stabilize (trade sideways). This
could mean that the stock is now poised to rise again in price,
but it could also be preparing for another move lower. With
micro caps and penny stocks it is always easy to find stocks
that look like they're at their bottoms. It seems that every
night we are analyzing a hundred different stocks that have
recently broken their downtrend. If you are unsure of how to
find stocks in up trends or downtrends, try a stock screener.
Once you think you've found a stock that is technically ready
to begin that profitable trend to new highs, it is now time to
do your homework. Fundamentally there are many things to look
for. There are so many that I can only give you a brief
overview. You will want to read the filings and news to
understand the companies share structure, current operation, and
if there are any future events that may cause the stock to rise.
Some of the more important items you will be searching for in
the filings are operating shares, authorized shares, float and
warrants.
When you have found a stock that is bottoming with a solid
share structure and is due to release great news, such as a new
product or strong earnings. This is probably a good time to buy.
Prepare to hold on, stocks in this market have been known to
rise thousands of percentage points in a short amount of time.