Finding the Bottom on Micro Cap and Penny Stocks
Trading inexpensive Micro cap and small cap stocks is really 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. In case you are correct and find the bottom, the stock has nowhere to go but up. In case you are wrong and miss the bottom, no one wants to "catch a falling knife".
When searching for bottoming stocks, the first key is to understand what caused the stock to drop to begin with. The second key is to find out when 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 stage the stock may begin to stabilize (trade sideways). This may imply that the stock is currently poised to go up again in cost, but it may be finding your way through another move lower.
With micro caps and very cheap stocks it will always be no problem finding stocks that appear to be they're at their bottoms. It appears that every night we have been analyzing 100 different stocks which have recently broken their downtrend. In case you are unsure of where to find stocks in up trends or downtrends, get one of these stock screener.
Once you imagine you've found a stock that's technically prepared to begin that profitable trend to new highs, it really is now time and energy to research your options. Fundamentally there are several things to search for. You can find so many that I could only offer you a brief overview. You will need to browse the filings and news to comprehend the firms share structure, current operation, and when you can find any future events that could cause the stock to go up. A few of the more important items you will end up looking for in the filings are operating shares, authorized shares, float and warrants.
When you have discovered a stock that's bottoming with a good share structure and is because of release very good news, like a new product or strong earnings. That is probably a great time to get. Prepare to carry on, stocks in the forex market have been recognized to rise a large number of percentage points in a brief timeframe.