College Stock: Penny Stock News

Based on a post comment made by one of The Dean’s earlier today, with regard to how to find the short interest in a particular penny stock to gauge short seller interest, The Dean wants to share some information about this topic.

Let’s start with the idea of short selling itself. This obviously refers to the practice of selling something you do not actually own yourself when you make the sale. Of course, if you’re a penny stock trader, you’re not exactly hearing about people shorting penny stocks for the first time.

But what is the short interest ratio itself? Simply put—this is the volume of shares sold short that are outstanding for a particular company. This figure is then divided by the average daily volume of that particular penny stock, which gives you the short interest ratio.

This ratio is an important thing to be aware of if you are considering shorting a penny stock yourself because it gives you an idea of what may happen to the stock in the near future. It’s also good to know that you should never take it as set in stone that any particular event will happen, especially with penny stocks. But, in any instance, this ratio merely gives you a gauge of how much short seller interest there is in any particular stock you are looking at.

The ratio basically gives you an idea of what short sellers think might happen with a particular stock. If the ratio is quite high it could indicate that short sellers think the price will improve over time. The opposite is also true – if the ratio is low it can point to the belief among short sellers that the stock will stay down instead of increasing in value.

The short interest ratio can therefore help you gauge how short sellers view a stock and what may happen to it in the near future. You shouldn’t use it as your sole means of making a firm decision on which stocks to buy or sell though. Similarly if you are shorting stocks yourself the ratio can be useful to know, but it should not form the only part of the decision making process.

If you are new to this part of the stock market it can pay dividends to work out the short interest ratio in practice for a few different stocks and then see what happens afterward. It gives you an idea of how the ratio works in practice, and how often the results truthfully indicate how the market will turn out. The more you can learn about the ratio the better, as it will give you a greater understanding of how it works.