Otc Stocks Go Up

Why do penny stock go up?

The short answer to this question is buying, because the stock market operates on the basic principles of supply and demand. If the amount of buying (demand) in a stock is greater than the amount of selling (supply), the share price will generally increase. That said, it’s a bit more complicated, and there are many other considerations, but this really isn’t the best question to ask anyway.
 
A much better question is, where did this new buying come from? It obviously comes from new investment, but when you are dealing with most small stocks, some form of promotion is generally required in order to attract those new investors. For small stocks, advertising campaigns targeting small investors are considered standard operating procedure for any company hoping to be noticed, and the amount of advertising being done will likely determine how long the stock remains liquid for those new investors.
 
Investor awareness is the life blood of a small stock, and the most common reason that an OTC stock trades actively, so the best OTC stocks maintain a consistent investor relations effort year-round. A high quality small stock will continually promote investor awareness on it’s own, in an effort to maintain liquidity and share price for it’s investors, but that isn’t the only way small stocks receive the benefits of paid advertising.
 
Investor relations professionals are often hired by venture capital firms, usually in an effort to create additional liquidity for themselves, so that a large position may be sold off. Investor awareness campaigns like this will normally continue until all of the venture capital firm’s shares have been liquidated, at which point their paid advertising efforts will cease. If this happens, and no other investor relations initiatives remain ongoing, it often means a rapid reduction in trading volume and liquidity.
 
How many times have you received an email about an exciting new investment opportunity? This is generally how new investors learn about small OTC stocks, and it is not necessarily a bad thing, but it is important to understand who is notifying you, and why. Small stocks will often rise when an investor awareness campaign begins, and then fall back down once it ends, so knowing where you are at in that cycle can be very useful information.
 
When evaluating an investment in any public company, liquidity should always be a consideration, but this is especially important when investing in OTC stocks. If a stock “trades-by-appointment”, it may go several days (even weeks) with no market activity, and this may be a problem if you are not prepared for a longer-term investment. OTC investors refer to this low volume period as a stock’s “quiet period”. Stocks generally bottom out during this quiet period, and the spread also increases (20% or more is not uncommon), so large percentage gains may be reaped on small trades by playing the spread. Also, even a small increase in trading volume during the “quiet period” can result in large gains for an OTC stock, but it is impossible to predict exactly when this will happen, so these investments should always be considered potentially longer-term.
 
There are many other factors to consider before trading any small OTC stock, but knowing how frequently that stock is being introduced to new investors should be at the top of your list.