You probably heard of penny stocks at some point. As the name suggests, these are the stocks of companies that trade with low share prices. Their stock prices range from $2 per share to fractions of a penny. Some of these companies can make the jump to major stock exchanges, while some might remain on the pink slips or disappear altogether. Knowing to pick the best penny stocks can be the difference between a profitable trade or a losing trade.
Think penny stocks are for you? Read Penny Stocks: An Investment that Most Need to Avoid and Penny Stocks: Worth it or Not?
How to find the best penny stocks
There are literally thousands of stocks to choose from. And new ones are being listed almost every day. You’ll feel overwhelmed and confused with all these choices to pick.
Read more about Different Types of Stocks and their Classifications.
Furthermore, finding the right penny stocks is difficult. It takes time to research and gather information individual companies, though it will increase chances of your success. That’s why this article will help you on how what to look for the best penny stocks to invest.
Read more about 8 Types of Investment: What Are They And How They Work.
What to look for when choosing the best penny stocks
Do a basic research on your chosen company
The first thing you have to do before choosing a stock is making a quick search on that certain company. And we know that quick search won’t provide you all the answers to your questions. However, it’ll give you a quick overview and enough information to know if this stock is worth your time and research.
If you’re in doubt with the company in question because of insufficient information or a bad reputation, this could be a bad sign. At the end of the day, it’s still your decision to make, so choose wisely.
When choosing the best penny stocks, don’t forget about their price stock volatility. What you want with penny stocks are those spiking fast. You don’t want penny stocks that are moving slow or down-trending for months at a time. Stocks that are moving quickly are where you can earn money as a penny stock trader.
Volatility is not the only factor that can help you determine some best penny stocks. Liquidity matters too, and no matter how attractive a company’s press release may look, don’t trade it when there’s not much volume.
It’s a rookie mistake to get fixated on volatility that you forgot to look at volume. This can result in a huge loss of money.
News and events
These are the catalysts that are poised to raise the value of a stock’s company. For example, Company A did a press release, saying they are releasing a new product. This new release could have a big impact on the value of that stock, so it may be a good time to buy before it gets famous.
Aside from the products, you might also look for mergers, sales, or other developments. Allowing yourself to scout the news can give you insight into what types of catalysts might be worth your while. Additionally, you’ll be able to determine if that stock is worth the investment.
Patterns can give you useful clues as to what may and may not work. With these, analyze what works and what doesn’t about trades so that you can make educated decisions about investments in the future. Keep a log of your trades to help you reduce risks next time.
Stock Price Range
Consider the stock price you want to trade. Stocks trading at less than $0.009 a share are easy to manipulate. Use a price range from 5 cents to $2. This can help you avoid this problem. With so many penny stocks that only exist on paper, it’s vital to select a company that actually makes money.
We understand how it can get difficult trading in the stock market. But this is something that you will learn as you go. It’s important to know that there are many different factors when choosing the best penny stocks. The factors might change, but remember to keep on your toes and always adopt.
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