Buying penny stocks can make you rich. Did you notice what I just said? Buying penny stocks CAN make you rich.
I didn't say that it WILL make you rich. Actually, it much more likely that you will loose money trading penny stocks. Want to know the reason why? You can't perform any kind of analysis on them. You know there are two kinds of analysis you can perform on a stock.
1) Technical analysis
2) Fundamental analysis
Well, with a penny stock, they just won't have much fundamental data. They aren't required to file many things with the stock exchanges because they are so small. That means that you as the investor just don't have a lot to go on as you try to evaluate it. It becomes more of a guessing game.
Second, the shares of them are usually trading at very low values (thus the name penny stock). And the volume is going to be very low.
So, technical analysis becomes invalid. Sure, some TA patterns will show up. You can spot "head-and-shoulders", etc.
That's not the point. The point is that all that is invalid without enough volume to confirm it. You see one large trade could push the price and break the technical formation with easy. Most penny stocks won't trade with more that about 10,000 shares traded per day. Anyone trader could easily make up that volume all by himself.
When you think about it, the value of the shares is only in the pennies, a stock that is trading at .03 will only cost $300. Anyone can afford a block like that and start to push the price just about anywhere.
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