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I would like to start a web-based software for the AI based penny stock predictor. The focus will be for the long term investing (and not the trading). This will be also associated with the news of the small-cap stocks.

Do you think anyone will be interested to purchase the monthly membership given the execution is good?

Update: My question is: if the execution is good, will it have a business potential?

closed as primarily opinion-based by Hart CO, Dheer, Bob Baerker, Chris W. Rea, Rupert Morrish Jul 15 at 1:52

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    As long as you market it effectively, no one will care whether or not it's effective. If it is effective, why won't you use it to make a million dollars? – RonJohn Jul 13 at 4:36
  • This for the long term investing recommendations and I don't have a lot of money free for that. Honestly, I can bearly invest €10,000 ATM and no more. However, my question is different: will anyone (or how many) would be interested to purchase monthly memberships? Do you see this has a business potential? – Arefe Jul 13 at 4:48
  • "Penny stocks" and "long term investing" are contradictions in terms. But I'll make explicit what I wrote before, if you market it properly, people will flood you with money. The world can't beat a path to your door if they don't know your door exists and don't know where you live. – RonJohn Jul 13 at 4:52
  • Is it possible I can have a private chat with you? (Skype etc) I would love to ask a few questions. – Arefe Jul 13 at 4:55
  • BTW I don't think this is true. Penny stocks can bring you a fortune if you have the patience. – Arefe Jul 13 at 4:56
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"Penny stocks" and "long term investing" are contradictions in terms.

Be that as it may... I'll make explicit what I wrote before, if you market it properly, people will flood you with money. The world can't beat a path to your door if they don't know your door exists and don't know where you live.

However, note that the Pink Sheet market (aka penny stocks) is rife with corruption and market manipulation, so making the AI work will be -- to say the least -- a challenge.

  • I have to say not all the penny stocks trade in pink sheets. I would like to provide a way to screen that trade in the major markets and a more structured company. – Arefe Jul 13 at 4:59
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Honestly, I'd be worried that the corruption inherent in penny stocks will bite you/your customers. Your AI program will either fall prey to pump and dump schemes (if you're bad), or will look like it's involved in a pump and dump scheme (if it's good). That last option seems like a good way to have a chat with someone from the SEC.

Also a good way to have a chat with the SEC: sending out recommendations like "buy this particular penny stock because I think it's about to go up in value".

Now, this doesn't mean that your idea is illegal, just that I strongly recommend knowing the exact rules surrounding this, because you're at increased risk of gathering regulatory attention. When that chat occurs, you want to be able to explain why what you're doing isn't illegal. (And avoid actually breaking the law, of course.) This will probably involve consulting with a lawyer who knows those rules, and following those rules to the letter.

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If your algorithm works, try it using paper-trading. Maintain a log of the prices it would have bought at, and sold at, and what the overall profit would have been. The longer it runs and the more consistent it is at making a profit, the more it will appeal to investors.

Paper trading is a proxy for the real market, but no substitute. You will find you may not get filled as quickly as you would like or at as good a price. So if you believe in the algorithm, you could start with a little bit of money, even if after transaction costs it does not result in a profit. This will further improve its appeal to investors.

While selling subscriptions to the algorithm's picks might seam logical, there are a few problems with that. Investments have to be suitable - you don't want a retiree putting their life savings into the picks only to find there is a bad day and they lose it all, and they are bankrupt in retirement. Is it really worth having that on your consciences (and the resulting lawsuit) for the monthly subscription fee? Suitability is very important.

If you have a track record and have tested it, you may be able to find sophisticated investors (hedge funds, speculators etc.) who understand the risks and may be willing to invest in your algorithm if it fits their investment profile and they have capital to spare.

In all likelihood, unfortunately, the algorithm is something that only makes money some of the time and doesn't make money the rest of the time, or may work for a short time, but not in perpetuity. Or may make money up to a certain amount, but no more (due to market liquidity issues). It could also be exacerbated by the accounting methods used (there are easy ways to make mistakes or categorize losses as "long term investments").

The key is to find these issues early on, before a lot of money is involved, and a lot of people are upset.

  • I was considering the long term investment (> 2 years) for the small caps than selling the algo trading signals. So, you will need patience for that. Do you think this can be a good business idea? – Arefe Jul 14 at 8:43
  • Depending on how much time and resources you can allocate risk to the project, potentially most profitable (if it continues to work) is to develop it yourself. If you want to accelerate growth and reduce your risk, you need to bring in outside capital. The more track record you have, the more likely people will buy in to it. It is a balance of risk/control/capital/time. Accepting funds from other people (particularly members of the public) for speculative investment requires following regulations, and dealing with the consequences if it doesn't work out well. – xirt Jul 14 at 13:09
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If your AI based penny stock predictor is effective, people will flood you with money for the access to the money maker containing the secret sauce. Even if it's no good at all, a cadre of speculators will throw money at you if you create some smooth come on ads.

Per your comment that you only have €10,000 to invest, that is more than enough to start with. If your 'predictor' is any good, you'll be able to easily pyramid that into a larger nest egg.

As Ron John noted, penny stocks are rife with corruption and market manipulation so it's questionable that you can compete with that. And given how many people have tried to crack this nut, what makes you think that you have or will discover this secret sauce?

  • I was considering the long term investment (> 2 years) for the small caps than selling the algo trading signals. So, you will need patience for that. Do you think this can be a good business idea? – Arefe Jul 14 at 8:43

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