Wednesday I talked about the 3 hottest sectors I like to keep an eye on when picking penny stocks.
But what do I look out for before picking a penny stock to trade?
I tend to keep an eye on several indicators of good performance before I take action.
If I look at the right places and gather the right information (and no, I don’t usually need a fancy scanner for this), I can spot a potential move before the rest of the market catches on.
News catalysts can create big price moves and entice traders to jump in or out of a stock.
Most companies release updates via PR wires, news outlets, blogs, and even on social media to inform the public about recent achievements or upcoming events.
But it’s important to carry out detailed research on interesting news headlines because they might skip mentioning the nitty details.
For instance, maybe a company just signed a big contract or secured a new deal with a major company in their industry, exact figures for the amount or contract period may not be mentioned. But more specific information will most likely be available on a public filing called an 8-K.
When it comes to penny stocks, these quick price moves don’t last very long. But traders that react quickly can potentially take advantage of them.
Please Note: Social sentiment can play a significant role in the stock market. But it’s not always an indication of potential.
Sometimes, rumors are created and fueled by shady people to cause a buying frenzy that will “pump” up the price of a stock and then jump out by selling their own shares at the inflated price.
That’s why it’s important to do your research, regardless of the source of information (whether it’s from Reddit, private groups, or Twitter).
Corporate Filings For Company Events
After a significant event, a company will have about 4 days to file certain statements with the SEC (Securities and Exchange Commission).
Corporate event filings are a good way to get in on the news early because some companies might not release a PR even after filing an 8K. And if they choose to, it might take days before they happen to put out a press release.
Earnings season is the period when publicly-traded companies announce their financial results in the market. It usually lasts about four to six weeks every quarter.
There can be a lot of movement in stocks around this time and earnings winners are some of my favorite stock catalysts.
The key here is focusing on price movement.
If an earnings report shows that a company didn’t make as much money as the market expected, the stock price could drop.
But if the report shows a company lost money that is less than the market anticipated, this catalyst could cause the stock price to spike.
Being aware of details from these reports can give traders an edge over newbies that wait for official news updates.
This is another catalyst that’s similar to upcoming earnings.
Companies (especially in the biotechnology sector) tend to show up at industry conferences. In these conferences, they’ll present updates, positive or negative trial results, or any advancements to their peers.
Sometimes though, upcoming industry conference participation dates may not be announced. So you might have to dig a little deeper to find out from other sources.
Most of the time, these announcements can cause traders to “buy the rumor and sell the news” in anticipation of a big move.
Of course, it’s important to carry out further research and not dump your money in a stock based on just “speculation” alone.
Patents/Trials/Regulatory Body Updates
This catalyst is a big one.
Certain regulatory bodies, agencies, and administrations tend to release or post information whenever a decision is made within the organization. This information release doesn’t depend on the schedule of the company involved.
And I typically use this to my advantage. Here’s how…
If a biotechnology company files a trial framework with the Food and Drug Administration (FDA), they’ll most likely release this information on their official website before any news comes out.
In most cases, the report of approval or disapproval of a clinical trial by the Administration will also be posted, even before the company reports it to its shareholders or makes it public.
Information like this can prompt early momentum even before the news is released. And traders who know what to look out for will get a good chance to react before the rest of the market catches on.
This catalyst doesn’t apply to the FDA alone.
Seasoned traders tend to keep an eye on oversight bodies like the US Patent and Trademark Office, The official website for government contracts, and even foreign agencies like the European Medicines Agency, and a bunch of others.
There are a ton of ways to find the best penny stocks to buy.
But the key in differentiating winners from crappy penny stocks is research that goes beyond news headlines or social sentiment.
Like all things, it might take a while and constant practice to understand exactly how these factors affect the movement of penny stocks and take advantage of them.