The answer may astonish you. Penny stock trading is not rocket science. While stocks with a larger capitalization offer sophisticated analysis options, penny stock trading is as simple as it could be.
The typical technical analysis that has their adepts guided to infamous wealth doesn’t work with low cap stocks. Order flow and liquidity comes and goes with microcaps.
This is different with the big name stocks and thus prices tend to present chart formations there. In the world of Apple and Google you can trade in the zone with TA. The same goes for fundamental news. News trading only makes sense with large stocks. Small stocks lack news. Of course, there is the occasional price level shifting event, but there is no continuous stream of news for small stocks.
So, penny stock trading works differently. If there is no interest in a stock, its price tends to go down over time. After disappointing company news it tends to crash terribly. In this situation renewed interest in the stock typically sparks a rally. And that is your trading signal!
Don’t try to overanalyze the chart TA-wise and don’t try to interpret the rare news of a company. Just look out for interest and trading volume coming back to a fallen stock and place your bet.
This is done best with an honest signal source. Someone who puts energy into finding special situations of the above described pattern.
Honesty is the main criterion here. Don’t expect to find a prophet in this market or someone who has insider information. These guys are mostly liars. Here is someone (me) who is hunting down the low cap markets to find specific situations of beaten down stocks that are promising.
There is only one thing missing for now – you have to try it, and the other thing is luck, but you will have it, I guess.