March 5, 2015
Perhaps one of the most basic chart patterns is the stock life cycle. Like any cycle documented via scientific means the stock cycle basicly shows the birth of a company’s stock (IPO) where traders are very excited to death (bankruptcy, irrelevant in market, etc.) where a trader moves to other tickers.
In business, another simple cycle is the product life cycle. A product is introduced for the first time and consumers are curious. Will the product be useful, wirth the money to buy it, and/or change how things are done for the better? a successful product will grow in awareness to consumers and the product will be purchased consistently or by many new consumers. As the target market, or markets, become fully aware of the product maturity can set in. Maturity in the since that the product is well known and new competing products may be entering. As the product’s appeal wanes then sales decline. A stock is much like a company’s product. Various resources are employed to aid a company in obtaining resources to continue business via stock issuance. A market trades the shares after IPO as a company’s performance is known or new future forward looking possibilities spark trader interest.
Moving to a more complex cycle is the economic life cycle for various business industries. The idea is that our economy goes through periods of growth and decline as products, services, and business occur that spark consumer spending or lack thereof. The eleven basic industries are annotated and noted as to where most successful in the economic cycle.
This next cycle illustrates the various types of traders entry into a stock cycle. As a ticker becomes known different types of traders enter to take advantage of a pps gain before too many become aware and selling starts to dominate the trend.
The psychology of a trader can be charged on a stock life cycle as well. Various emotions are experienced as a trader holds onto a ticker through the various stages.
OTC Penny Stock Life Cycle
By stocksplitter2 on iHub
Stage 1 – Accumulation. Stock is quiet, trading sideways and without a lot of volatility. Most everyone ignores the stock because it has no sizzle. Insiders hold large blocks of stock and quietly gear up for the distribution.
Stage 2 – Breakout. Volume jumps up, psychological barriers are broken. Insiders begin to tell their friends of upcoming significant fundamental change. Pros take notice and buy the stock on the coat tails of the well informed. The public ignores it because they have not read about the company in the paper yet. It must be a scam.
Stage 3 – Uptrend. As a larger audience learns of the company and its promise, more buying comes in to the stock and it begins to climb. Pros begin to sell, but slowly. Average investor begins to buy.
Stage 4 – Pullback. The stock has gone up too fast, and some profit taking arrives. The jumpy investor who got the entry timing right but lacks confidence in his or her decision sells the stock with a small profit, and smiles in the mirror. The Pro holds on, Average Investor looks through the newspaper to find justification for ownership of the shares.
Stage 5 – Resumption of the Uptrend. The pull back is short lived, and the stock bounces and continues higher. The wannabe regrets the sell, but provides self counsel on the merit of making a profit, albeit a small one. The Pro might sell a little bit more, but still holds the majority of the original position. The Average Investor is getting excited now, and thinks about what could have been if only he had bought when he first noticed the stock.
Stage 6 – Exhaustion of the Uptrend. The media takes notice, and communicates the company’s merits to the masses. The masses buy the stock, and it goes up sharply with strong volume. The Pros sell with enthusiasm. The Average Investor owns it now, and is telling everyone who will listen. The wannabe Pro jumps back on, after all, he was smart enough to buy it when the trend started, so he knows the stock well. Will hope make it go higher?
Stage 7 – Gravity Works. Pro selling begins to weigh on the uptrend, and the stock fails to go higher despite high volumes. The stock starts to go down instead of up, and the Pro is almost sold out. The Average Investor continues to cheer lead, hoping to rally support. The wannabe ignores what the market is telling him, taking a loss is too painful to consider. The company is featured on the cover of a magazine.
Stage 8 – The Second Guess. The stock bounces and starts to go back up. The wannabe Pro averages down while the Average Investor gets back to advising friends of his stock picking acumen. Pros sell their remaining holdings and begin to look for another deal to play, or perhaps start short selling the stock.
Stage 9 – Out of Gas. The bounce is a fake out, and the stock moves lower again. The public own this stock, and they have no more power to buy. The Pro are making money on the short sales now, but are despised by the masses. Calls for short selling to be made illegal are made by the Average Investor, after all, the short sellers are the demons causing the sell off.
Stage 10 – Dead Cat Bounce. The Average Investor and the wannabe Pro have no pain tolerance left, and finally sell for a big loss. The short selling Pros are the only buyers to take the share off their hands, and provide the needed liquidity. The stock bounces, and some short term traders make a quick profit. The Average Investor either swears to never buy a stock again, or tells lively stories over drinks about the one that could have been.
Stage 11 – Post Mortem. Pros have forgot about the stock and are considering carpet samples for their new home in Florida. Average Investor continues to follow the company and buys loads of cheap stock to try and overcome the regrettable loss.
The stock market is mean. You can be a good analyst, but if you can’t overcome the psychological traps of trading, you will do what the crowd does. To be successful, you have be one step ahead of the crowd, and trade with unemotional discipline. There are strategies to take advantage of each stage of the marketcycle that can be applied just by looking at a stock chart. They just require a bit of knowledge.
Lifecycle of a Penny Stock- My Clarification
Phase 1 to Phase 5
I sent a private message to a trader friend on iHub back in 2013 in regards to OTC pink current, at the time, $MRIB. It helps summarize phases 1-5 of the penny stock Lifecycle sticky this board has. Here’s what I noticed after taking a longer term stance on $MRIB so I could gather some hands on experience with DD and emotions from board postings.
“I don’t think it matters if a hedge is in here shorting. After reading the MRIB board the past couple of months I’m noticing the following:
+ In the beginning, around $.007 pps, the longs were posting DD everyday and post counts were small daily.
+ MRIB started issuing PRs and we jumped to $.015. Board post counts increased and new faces appeared.
– Bigger groups started to take notice, such as BIG Investment Group LLC and the Money Runners, and the pps went to $.0248.
– After the pps all-time high, the bashers kicked in full gear. The pumpers have also kicked in full gear. As a result, we’re seeing flippers fight it out daily to take advantage of nice 20-40% swings each week. These pumpers and bashers alternate their intensity depending on the pps movement each day.
Take today for example. All weekend the pumpers were posting nonstop. The bashers posted some, probably just to show their effort still, but hoping for News probably. The News didn’t hit yet today. So, the pumpers are barely posting now while many resident bashers, and some new bashers today, are posting up a storm. In the end, I think both groups are working the pps for their gains either way. Once the PRs and News kicks in the longs might be rewarded. The little guys who are trying to flip are probably losing overall.”
Moral- be a long or join the pumper/basher styles? There are so many variables involved such as MRIB’s true abilities to distribute vodka, current financial strength, does a license exist, when will PRs/News come, and all of the good DD on the board being actually verified. I can apply these findings to most penny stocks I trade. Is any one trading style truly the best?
So, I gather stocks I feel have great pps oscillation at this point. Do you want to play:
+ Flipping from Momo from PRs/News/Alerts
+ Flipping or Long-Term holding from Financial filings as they occur
+ Flipping from Chart readings (TA) to guess which way the pps will go
+ Day trading to play both ways- buying low and selling high or shorting high and buying low regardless of all the noise
+ Holding Long as an investor to wait for a year
You can do any of the above lol. So, you see all of the investor/trader styles in posts. Should you niche into one style? Totally up to you. No judging here…only trying to guess which style to utilize depending on the ticke’rs Lifecycle…