Page 20 - EQ Mag-issue 5

STOCK RESOURCE (Cont’d)
Management is another important fundamental to
be reviewed prior to investing, at the end of the day
these are the executives that hold the responsibility
to oversee the company and will ultimately fall on
them the responsibility of leading the company
towards a profitable stage or in a negative scenario
to become part of the bankruptcy list of penny stocks
every year.
2. High Volatility Stocks
Depending on the trading strategy that you may be
implementing, volatility will either make you or
break you in the process. As a long term investor, you
want to see positive volatility in your penny stocks,
since it means there are more traders getting
involved watching and trading the stock. This could
lead to institutional players putting their eyes on the
company.
If you are a day trader volatility could play as a great
opportunity giver when the price swings are due to a
specific catalyst or simply based on technicals. The
real issue becomes when the volatility is the result of
random swings without visible patterns, making
trading a complete nightmare if the size of the
positions is not adequate to tolerate these swings.
3. High Volume and Liquidity Stocks
The volume is calculated by the number of shares
traded on any given session, this indicator is
commonly used for Penny Stocks picking since it can
provide a better view of the interest of traders to buy
or sell any outstanding shares in the market.
A golden rule in order to avoid being stuck stocks
with low liquidity is to avoid any stock trading under
500,000 shares a day, and if you are willing to take
more risk you could lower to a minimum of 200,000
shares traded a day, anything bellow could
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potentially become a trap, causing you to have
problems trying to sell the stocks.
4. Speculative Investment
There is a big difference between what is possible
and what is probable to happen at any single
moment in the financial markets, in reality, anything
is possible, what really makes the difference when
making a decision are the probabilities of one thing
happening over another one.
One could say that a Blue Chip Company that is a key
part of the Dow Jones Industrial Average Index could
hit zero in the next six months, it is always a possibility
for a scam or external even to happen and take down
the price of a stock. In reality, the probabilities of this
type of insert taking place are very slow and in some
cases non-existing.
In the penny Stock market, things turn a little bit
more difficult to evaluate due to all the uncertainty
and the increased probabilities behind a stock going
bust. Any long term investor taking a position in a
Penny stock should contemplate the possibility and
the probabilities that his/her investment may end up
going to zero, making position sizing and risk
management requirements to survive this market.
Conclusion
Before even thinking about investing in any Penny
Stock it is important for investors to understand their
market profile and their risk appetite. As mentioned
before this specific asset class has its own peculiarities
and characteristics that make it extremely volatile
and long term investors should keep in mind that the
value of their shares could be severely damaged if
things go south, a value of zero is always a possibility
to keep in mind.
Do your research, understand the companies and
their entire business model, their management,
products, competitors, this will help you get involved
and will give you a clear view of which companies is it
worth taking the risk investing.
The market is full of incerto events that could turn
losers into unicorns faster than you can imagine, it’s
your responsibility and ultimate goal to research
enough to find these opportunities.