Market Psychology

Market Psychology (Penny Stocks)

The market psycholgy for penny stocks is very much like a bell curve which can be divided into three stages:

Pre Stage 1: Not many people know about the company. Limited number of investors who bought in at the top from the previous run are still holding waiting for the SP to pick up. Unfortunately they got in too late and its a long gruelling wait before the next run.

Stage 1: Create relevant interest in the market for the company by publishing articles on various websites, emails from Hot Copper etc. The big boys pump up the SP by buying in big chunks. This creates even more interest in the stock.

The big boys sell their holdings to the new buyers who enter the market at Stage 1 making a nice decent profit. The new buyers start their research into the company and start expecting good returns on the back of good announcements.

Stage 2: The big boys have no more shares to sell, supply at that SP achieved at stage 1 is drying up. On the back of some positive news the SP is pumped up again similar to stage 1 by the big guys. More interst is created and new buyers step in. The big boys and some of the investors who bought in at Stage 1 sell their holdings to make a profit.

Stage 3: This stage is the peak and most money is lost here. Once the supply dries up the SP is pumped up again to the max it can achieve. The people who buy in at this stage are amateurs who make massive losses.

As expected, the bog boys start selling their holdings making decent profits, same as the investors who bought in at stage 1 & 2.

The SP keeps dropping to a level where thebig boys think is the right time to step in again and the cycle is repeated again.

I reckon we are still at Stage 1 and if we have the patience good profits can and will be made.

Looking forward to next week. Good luck to all.