Trading penny stocks can be tricky, especially if you like to find them on your own. The good news is there are a whole range of websites that can help you spot and trade the best.
When it comes to really improving your results with penny stock trading though ” in a big way ” top traders know theres more to it than simply looking for solid companies and using technical analysis to enter and exit trades.
In order to be successful, you need to know how to weed the garden of penny stocks. This way you can eliminate the mediocre or low-odd stocks. Here are four high-level concepts to help you work through this process.
Determine Who Owns the Lions Share of the Company
If insiders own a lot of company shares or sell a lot of their shares, you should pay close attention to the managements motivation. Owning a lot could boost the likelihood of success; selling a lot raises a red flag.
Information about how much stock a companys management owns is a matter of public knowledge. Publicly held companies generally disclose the breakdown in an 8K and/or Form 4 filed with the SEC.
Getting the Word Out ” The price of penny stocks are often affected as much by the publicity it receives as its fiscal success.
Were not saying that organizations need to capture media attention 24 hours a day, but consistent press release about the current state of affairs or one-time events can help attract buyers.
Trading Volume High Enough? Make sure when you want out that theres going to be a market that offers a decent price.
If 500 shares of a penny stock trade hands on one day and then 500,000 shares trade hands the next, which is it going to be when it comes time to take a profit on the 100,000 shares you may own? Liquid penny stocks are consistently liquid.
That said, high-volume breakouts are how new uptrends start, and dont necessarily need to be avoided. Quite the contrary, actually. A penny stock doesnt have to maintain volume levels seen during a breakout effort just to be considered liquid; the pre-surge volume just has to be respectable.
If you buy a penny stock without doing a little research, you just might find yourself on the losing end of a loser company. It may have been started on a whim, without a plan for growth, or a long-term patent may be close to expiring.
When you consider buying a penny stock, realize that these companies are in early stages of growth. You want to make sure it has a game plan for expansion or a product about to launch that will bring in profits.
Likewise, more than half of all stocks trade at a value under their IPO price within twelve months after their public offering sale. Thats not a problem for a true long-term investor, but it can make things challenging for a penny stock trader who wants to get in early shortly after an IPO. It can take a while for a new stock to settle in and start trading predictably.
A rule of thumb for buying penny stocks is to only buy those with an element of contextual history.
With these four concepts, you can begin trading penny stock right now.
These four elements are not meant to replace a good trading discipline and chart monitoring. Use them in conjunction with sound strategy and youre likely to improve your track record as a penny stock trader.
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