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When Penny Stocks Soar
July 14th, 2006
Penny stocks can make you a lot of money. However, even when you are sitting on a $7,435 profit, there is still that part of you that knows it might make you even more.
As great of a problem this is to have, many investors just don't know when to sell their penny stocks. You might double your money, but it hurts to sell and then watch the shares continue to soar. So, with volatile penny stocks, how can you know when it is time to bring the profits from the markets to your pocket?
Here are three quick points that may help you selling your penny stocks:
ONE: Selling penny stocks does not have to be a totalitarian decision. Sell some. Keep some. Lock in profits by taking half your money off the table after a good price spike. Let the rest ride.
TWO: If the penny stock's price rises dramatically on huge trading volume (up nearly 100% in two days or less), the first thing to do is find out what is the impetus for the rise.
Call the company, check the news releases, read the message boards. Unless there was a major event that will endlessly hold those shares at a higher price (like a takeover bid) then you might see the shares come back down soon. As soon as that bout of buying interest dries up, the penny stock shares almost always come back down.
Watch closely for a weakening of the upward momentum - if the stock goes up 75% one day, then goes up 25% more the next day, you often see the third day result in a big drop off. Day one is the big gain, day two a further but lesser gain, day three the profit takers come out. IT happens all the time in penny stocks.
You'll also be able to confirm this pattern by looking at the penny stock's trading volume. Day one has a massive increase in trading volume compared to any day in the previous several months, day two sees another big, but lesser volume day. Day three's volume will be pretty high, but mostly because there are so many profit takers.
The general rule is that a penny stock does not have three very-strong up days in a row.
THREE: Call the company. Tell them they've had a good run in the share price, and you want to know if they expect the momentum to continue.
They won't answer that question directly, because they are not allowed to comment on share price activity, especially forward-looking. Yet, you will get an idea of how optimistic they are.
Follow up your question with, "I imagine that the share price will reflect the operational successes of the company. Can you tell me a little about what your company is going to do tactically and operationally going forward, and how your imagine that will benefit the company, and hopefully the shareholders?"
Word it however you want, but that is the gist of what you want to get out of investor relations contact. You'll be surprised at how well a good IR contact will paint the picture for you.
Then, you'll have better clarity about selling your penny stocks after they've had a good price rise.
For more on knowing when to sell penny stocks, check out the penny stock professionals at Peter Leeds.