Penny Stock Catalysts
Penny stocks have traditionally been linked to catalysts in years past. Whether it be news, promotion, industry events, or market hype in general, a high risk penny stock can tend to react, well, on speculation. What does this mean? Well to get an understanding, let’s explain what speculation actually is. By definition, speculation is the forming of a theory or conjecture without firm evidence. What this means at the very basic sense of the term is that there are educated guesses being made based on suggestive or loosely related information. A good example of this can really be applied to any kind of stock, not just penny stocks.
Say you read an article about a newly legalized industry. Well, speculatively speaking, investors who subscribe to this ideology will look at stocks that are doing some kind of related business within the industry or around the industry. If you remember 2014, you’ll most likely remember the boom in marijuana stocks. Colorado approved the legalization of recreational marijuana and almost over night, any company that was publicly traded and had some kind of dealing with marijuana, hemp, accessories, lighting, growing, consulting (you name it), saw speculative buying and the prices shot up.
This leads to the next kind of catalyst, which is news. Again the easiest example of news catalyst can also be tied to marijuana stocks. During the early boom of the industry (which is also still booming in our opinion), companies would announce that they were “entering the marijuana industry.” Now, unbeknownst to inexperienced traders, many of these companies put out this news because they had a feeling that it would be a catalyst just to help their market cap…unfortunately, as many found out, a lot of this news had no base and in turn, many of these companies ended up getting halted or delisted. This is the risk that many penny stock investors take on. So make sure that if you see news released, there is some base to it and it isn’t just “a plan to enter” or a “hope to accomplish” something but an actual real event that in many cases can be supported by a corporate filing.
Beyond these penny stock catalysts, other catalyst can be industry chatter, social chatter, and even rumors that circulate. Of course a lot of the time, this “chatter” or “rumors” are just that and are there just to generate hype. Again, don’t just take the words for truth. Smart penny stock traders and penny stock investors will investigate the details further to come up with their own conclusions.