3 External Factors that Impact the Penny Stock Markets

So, there’s a common misconception that penny stocks just kind of, do their own thing, they go up, they go down, they don’t really operate within the bounds of the economy or the rest of the world. I actually disagree with that. I think there’s three factors that quite frequently influence the movements of penny stocks.

So today, I’m gonna talk about the connection between penny stocks and the rest of the world.

Follow The SPY

So, as I mentioned in the beginning, many people will say, and you’ll see in a lot of these YouTube videos, that penny stocks do their own thing.

And, I mean, that’s true to a certain extent, but in the larger, more active penny stocks, I think they really do trend a lot of outside factors, like the overall market.

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Something I highly recommend you do, is follow the SPY, okay? That is the S&P 500 Index, it’s an ETF that tracks the S&P 500. It’s my favorite tool to kind of gauge the overall market.

You’ll see a lot of traders will follow the Dow Jones, which is great, but it’s only 30 stocks in the Dow Jones industrial average. The nice thing about the S&P 500 is it’s the 500 most actively traded, biggest stocks out there.

Now, I know the Dow and the S&P will kind of track each other, so you’re splitting hairs to a certain extent, but I love the SPY as a tool, because of the fact that.

The simple fact is, three out of four stocks follow the overall markets, and that includes penny stocks.

So, if you’re trying to buy a breakout on the day the SPY is in the tank, you might be stopped out, you might really struggle with that trade working.

Flip side, if you’re trying to short a low-price stock that’s up big on the day, and the market’s booming into the close, do you really wanna be short a stock, when the market’s hitting new highs? So, use that SPY, and it doesn’t mean you do one thing or do other, it’s just a tool in your tool chest, that really helps you decide how you’re going to approach the day.

And really, especially after you enter that trade, what are you gonna do after that, okay? If the trade turns against you, and the market’s going the opposite way, that tells you, okay, not only is my stock not working, the market’s confirming to me that I should probably exit this trade.

Big Events and Big News Events

Next thing I wanna talk about, these are things that happen in the world, that really influence penny stocks, and these are what I call big events, you know, and big news events.

Could be an earthquake. You’ll see, you know, earthquake related stocks, you know, sometimes they’re detection devices, maybe they’re safety devices for an earthquake. If there’s a military conflict, you know, if there’s a, if we attack, you know, say, goin’ to a certain country, or another country attacks us, you’ll see military detection, you’ll see weapons manufacturers, there’s a lot of low-price stocks that are in that industry.

So, when a military conflict pops up that could happen. You could see disease outbreaks. Few years ago, we had that, the first confirmed outbreak of Ebola in the US, well it wasn’t an outbreak, one person had Ebola, but we had some of the, I mean craziest moves ever!

Stocks went from two to 30 in a day or two, because of the fact that they offered, they sold Ebola containment devices. So, that’s a good example of something that happened nowhere near you, one person in the US had Ebola, was Ebola positive, and stocks went wild!

Other events, like, I think back to when there was the social unrest in Ferguson, lot of body armor stocks, body cam stocks ran. So, there’s always, you know, something I want you to be aware of, even if you’re a penny stock trader, still know what’s going on in the world, still read the news, still be aware of outside events, because they do offer trading opportunities.

Hot Trends

Last thing I want you to focus on, kind of related to number two, but slightly different, look for hot trends, specifically in the markets, okay?

So, this is something that maybe completely detached from the real world, maybe low float stocks are movin’ a lot, maybe cloud computing stocks are movin’ a lot, maybe Bitcoin stocks are movin’ a lot, weed stocks.

These are things that I would say, for lack of a better term, might be detached from the real world, but they’re trends that are happening in the stock market. Because whether or not it’s a viable strategy, once something, once a sector, once a particular branch of stocks warm up and start moving, people start looking for the next hot stock.

So, if you’ve got a particular sector, say it’s a weed stock, and this stock went from one to three, the next day, you’re gonna see a lot of these runners come along that wanna follow that stock.

The best way to do this, and it’s so simple, remember in trading, keep it simple stupid, is very true. Just run those percent gainers. And every day, look what the biggest stocks of the day are. What industry are they in? What sector are they in? What business are they in? What’s the flow, you know, what do they do?

And even if you can’t trade, and this is the big tip for you as a new trader, you probably got school, you probably got work, you gotta family, you got all three, you’re really busy, but you still should spend that time every single day, I mean everyday.

You can do it in five to 10 minutes, to at least look at the biggest percent gainers, whether you use StocksToTrade, whether you use Yahoo Finance, whether you use some other free website, look what the big movers of the day are, get out your notebook, write down what sectors they’re in, write down why they’re moving, and that’s how you become a trend follower, and then, next time that sector comes back around, maybe you’ve got the time to trade, you can attack.

So, those are the biggest three things I want you to look for, outside of just random penny stock moves.

So, comment below, do you track the top percent gainers? I think it’s one of the best ways, whether you can trade or not, to look what the biggest percent gainers are doin’, what industry they are in, and why they’re movin’. So, let me know if you’ve been trackin’ that data below.

Thanks for reading our article.

Beer buff. Incurable zombie guru. Amateur introvert. Avid writer. Typical bacon junkie. Trader.