How To Pick The Best Penny Stocks

Hello, and welcome to my latest post. Let's begin shall we?

A penny stock rose 700 percent this week, which amounted to a 35 cent increase on a 5 cent stock. This kind of increase is not abnormal, nor is it ordinary to the point in which this type of increase can be expected. In this instance a $500 investment would have easily gained you a whopping $3500 profit in a day. The stock is Panacea Global Inc. and it is traded on the Over-the-Counter (OTC) market which is less safe than the NASDAQ and the NYSE. Panacea Global Inc. is a biopharmaceutical company that specializes in early detection cancer tests. Someone knew about an important event in the company or one that is eminent.

It would be hard to predict this stock price jump unless you had some knowledge about the company and its work that would justify a 700 percent increase.

A penny stock (also known as a penny share) is a share that sells for less than a dollar although some experts believe that stocks selling for less than $5 are penny stocks. The company’s financial stability is vital to the stock exchanges that might be asked to “list” the stock. Newer companies and many hi-tech companies start out on the OTC which has very little regulations.

The good thing of being “listed” on the NYSE or the NASDAQ is the level ease of trading and the publication of price data in real-time. For the stock buyer the advantage is the higher level of accountability that is demanded of the company, and the rules of the exchanges that make the stock a much more secure investment with more accountability to the investor.

The buyer of penny stocks can find a lot of info about a company from analysts and others who study the stock and the business it is in as well as the market that it serves, and then they render a buy sell recommendation. These recommendations are often made by the “pump and dump” people who hype a stock to achieve a run-up in the price. Once the price reaches a certain level the stock is dumped and the price declines quickly, and usually before the unknowing investor is aware.

The way to make money on penny stocks is the same way money is made on stocks listed on the NYSE. Research the company and the business the company is in. Do the homework needed to assess whether the stock has a future that will be worth money. Penny stocks should have a great amount of trading volume. The higher the volume of shares the easier it will be to trade them and the price mobility of the stock will be easier to track. The number of shareholders should be enough to make a thriving market for the stock rather than a lower number which could possibly create price control and manipulation. 

Shares should be listed on the NASDAQ, SmallCap or the AMEX because they are more accountable to the shareholders. Most of the time the price of the penny stock is not quoted on an easily accessible exchange, so it never hurts to know how to find the trading price of the stock.

Buying and selling penny stocks is an excellent introduction to stock trading on the NYSE without the heavy risk. The buyer of penny stocks will risk a small amount of capital for a valuable learning experience, but the amount can be insignificant compared to a NYSE stock purchase. It is also a learn as you go process, which means that losing a little over a period of time allows the investor to recoup their loss and learn in the process.

Thanks for reading,

D.G.

What Are Penny Stocks?

A stock is known as a "penny stock" if it trades under a specific price per share. Some disagree as to where the cut-off is. Most financial experts describe a stock as a penny stock if it trades under $5 per share. However, many others believe the cut-off to be $1 per share. Some even set the cut-off very high at $10 per share but this is very rare. At any rate, the term "penny stock" is a controversial since it can trade for more than mere pennies.

You won't find many penny stocks trading on the big stock exchanges like the New York Stock Exchange (NYSE), The reason for this is because these major stock exchanges have strict requirements to be listed and most penny stocks do not meet these requirements. That is the reason, these lower priced stocks trade on boards that have a lot less stringent requirements to be listed. They are usually traded over the counter on the OTCBB or on the pink sheets.

Ocassionally, you will find stocks priced under $5 per share trading on the big boards. However, these are the exceptions rather than the rule and most of the time they are companies that were once more prosperous and have now fallen substantially. If a stock stays down for too long and/or sinks too low, it will end up being be removed off of major exchanges and demoted to the OTCBB or pink sheets.

Many penny stocks actually trade at a fraction of a single penny per share. For example, you may see a stock on the pink sheets listed at $0.001 per share. In this example, you could easily purchase 1000 shares of this stock for $1. For $100, you could buy 100,000 shares. This is one of the many reasons some people are so attracted to penny stocks - they can purchase so many shares for very little money.

Sometimes you will hear terms like nanocaps and microcaps used within the world of penny stocks. However, these are not the same as terms like nanocaps and microcaps that refer to the "market cap" of a stock which is the amount of money a company has on hand to spend. Although it is true that penny stocks normally have a low market cap, usually in the range of nanocaps or microcaps, it is not always true and market cap is technically not used to designate a stock as a penny stock.

Keep in mind that when trading these stocks you can make huge profits but you have to be careful about which ones you pick to trade. The downside of trading stocks on the OTCBB and pink sheets is that it is much more difficult to get the company information about a stock trading on these boards because the reporting requirements of penny stocks are so much lower. However, the upside is you are not competing with the major financial houses and the stock is much more likely to move up a lot faster than traditional stocks.

Intangibles of Penny Stock Trading

When is a penny stock really successful? When it’s matured and moved off the pink sheets to more mature markets and recognizable exchanges you hear mentioned every day: The U.S. based NASDAQ SmallCap Market, the European based Alternative Investment Market, Paris’s CAC-40 Index, plus others in Latin America, Asia, and Canada.

There are no shortcuts when it comes to making money in the stock market. Besides working through a stock broker or trading online, the same principles apply. But there are other factors at play that often go unnoticed by novice investors, the dreaded “intangibles” and all their twists and turns.

1. Be wary of incessant stories of penny stocks that hit the big time. Yes, there are winners out there, but unsolicited ads filling your junk email folder are there for as reason, and need to be carefully reviewed before buying any shares. The rule of thumb? Keep your eyes open for penny stocks that have demonstrated growth over a full 52-week period.
2. Pay attention to all disclaimers, and consider all penny stock picks with a healthy dose of cynicism. Just because social media has grown in leaps and bounds (Think Facebook, Twitter, Google+, Linkedin), that doesn’t mean someone who updates their status with a hot penny stock tip is in any position to cure all your financial ills. And if you take the medicine they offer, you may have something far worse than an allergic reaction! Keep in mind that you rarely see disclaimers with any of these social media outlets, which should raise a warning flag.
3. Stock market trends can provide key information, especially when it may be time to sell quickly.
4. Keep in mind that key executives for any company are understandably partial to their own stock. As such, keep your enthusiasm running a few gears below over drive, and always remember factors such as stock price over time, market position, and other factors to help you decide if a stock is a worthwhile investment.
5. Stay away from short sells, whether you’re a new investor or not. Why? Because of the volatility of certain stocks, even over the course of a 24 hour period.
6. Focus on high-volume penny stocks that have a trade volume equal to or greater than 100,000 shares daily.
7. Penny stocks that have experienced an earnings breakout – driven by a key product launch or increased market share – are good targets to consider.
8. Do not trade large positions. A rule of thumb is to not trade more than 10 percent of a single stock’s daily trade volume.
9. Keep your emotions in check, and try and separate infatuation from cold, hard facts. The best thing to remember is stocks serve a goal for any investor: To make money, which a sound company will reinvest in itself and turn even more profits in the future.

Top 10 Secrets of Trading Penny Stocks

• Penny stock investing and trading penny stocks can be profitable for the investor willing to try penny stocks


• It is possible through online penny stock trading to find penny stocks and penny gold stock without much trouble


• Investors looking to buy penny stock can look under penny shares as well

1. Know When To Call It Quits When Trading Penny Stocks

Penny stock investing is just like other investment types, and not every trade is going to be successful, even for experts like Warren Buffet. One of the biggest secrets of trading penny stocks is to know when to sell and walk away. Every investor makes mistakes, and recognizing these can help limit the losses from a bad choice.

2. How Investors Find Penny Stocks

Penny shares are a great market for many investors, but how are these found? There are many websites and stock finders that can help locate penny stocks without the need for paid advice. The penny stock broker used can also make recommendations, but be careful of any conflicts in these situations. Complete research is the key to great investments.

3. Cheaper Ways To Buy Penny Stock

One of the hidden secrets of online penny stock trading is really no secret at all but many brokers do no know it. Use discount brokers, because the trade fees and commissions are much lower. These are online broker services that charge discount fees to investors who perform their own trades electronically, using the discount broker as a clearing house to access better trading opportunities with lower costs.

4. Online Penny Stock Trading Is Just As Effective But Much More Convenient

Whether the goal is to buy penny stock or sell it, trading online offers much more convenience and is far easier. It is important to remember that real money is involved though, because at times some investors may forget that the numbers represent real amounts of money. Investors who try penny shares usually risk smaller amounts though, because of the low share prices.

5. Penny Gold Stock Can Be An Ideal Choice

With the price of gold lately, penny gold stock investments can turn out to be a very wise pick. These are stocks in the gold sector that meet all of the requirements for penny stocks, but do not meet the stricter standards of the major markets, like the NYSE and NASDAQ. Gold has always been an excellent choice for investors, and this is true with penny stocks in this area as well.

6. Success With Penny Shares Is Normally Seen In Small Gains Not Large Leaps

One secret that many experienced traders know is that the goal with penny stock investing is that of small gains and not get rich quick dreams. Penny stocks have very low prices, so even if the price doubles the amount may not be substantial. If this is done often enough though, with many trades seeing short term gains, the amounts will add up over time.

7. It Is Possible To Try Penny Stocks With A Low Investment Amount

Because penny shares have such a low price per share, trading penny stocks can be done with a smaller amount of money than most other markets. Even a few hundred dollars can be used to buy penny stocks and start trading. This also means lower risks, because there is less investment capital involved and short term gains are normally the goal so the stocks are not held long.

8. Trading Penny Stocks Usually Requires A Broker: Choose Wisely

A penny stock broker is needed, but make sure to choose wisely. Look at the fees and commissions charged, and determine whether they are reasonable. There are a number of discount brokers that will charge a flat fee per trade, or a monthly fee for numerous trades. This is normally better than paying a commission per share traded, especially if a high number of shares are bought and sold regularly.

9. Look Closely At The Penny Stock Investing Costs And Expenses Involved

Every investor should ensure that they are aware of all the costs and fees involved in an investment before making the final choice. Hidden fees, high commissions, and administration costs all lower the value of the investment. Cost is not the only factor but it is an important one to consider.

10. Watch For Common Scams When Trading Penny Stocks

Penny stock investing does carry some risks, and one of these is scams and manipulations which falsely inflate a penny stock. There are a number of scams that can be spotted if the right research is done, and the investor will prevent losses by avoiding stocks which do not seem solid and reliable, or trades that resemble common scam methods. Be wary of any deal that does not allow the time to thoroughly investigate the stock.