Thursday, May 31, 2012
How To Pick The Best Penny Stocks
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,
Posted by Syde Trak at 8:21 AM